Wall Street: Largest Stock Jump in the Last Nine Months

Thanks to investors’ hopes that a timely agreement will be reached in the U.S. Congress regarding the increase in government borrowing, stock prices on Wall Street rose by more than 2 percent on Thursday, marking their largest daily jump in nine months.

The Dow Jones jumped 323 points, or 2.18 percent, to 15,126 points, while the S&P 500 index also rose by the same amount, reaching 1,692 points. The Nasdaq index, on the other hand, strengthened by 2.26 percent, to 3,760 points.

The largest daily jump in the index in the last nine months was fueled by investors’ hopes that President Barack Obama and Republicans would find a solution at their meeting on Thursday evening to end the government shutdown and increase the level of permitted government borrowing.

Ahead of the meeting at the White House, Republicans proposed a plan that would allow additional government borrowing in the coming weeks so that the government could meet all its financial obligations even after October 17.

This would buy time for continued negotiations on the budget and funding for government services, which have been non-operational for nine days.

Two hours after the market closed, futures indices sharply fell following a New York Times report that Obama rejected the Republican plan as it did not foresee an immediate end to the government shutdown.

However, losses were quickly reduced after news that Obama neither accepted nor rejected the plan and that talks would continue.

“Markets will be very sensitive in the coming days as they monitor the developments in Washington. Unfortunately, the soap opera is what is being followed the most, while it would be better if investors focused on corporate earnings and economic reports,” says Michael Cuggino, portfolio manager at Permanent Portfolio Funds.

The season for quarterly earnings reports from companies, which usually has a decisive impact on market direction, began on Tuesday with Alcoa’s report, but in recent days it has been overshadowed by the Washington soap opera. Nevertheless, progress in Washington positively affects the markets.

“Doors are open for discussion and negotiations, whereas just a few days ago both sides were merely blaming each other. We do not know if we will be in the same place in six weeks, but possibilities for an agreement are open,” says Peter Jankovskis, director at OakBrook Investments.

A slightly better mood among investors is also indicated by yesterday’s drop in the VIX ‘fear index’ of the Chicago Options Exchange by nearly 16 percent. Prior to that, this index had jumped more than 50 percent in three weeks, reaching its highest level since June, as investors were increasingly hedging their portfolios against a potential drop in stock prices.

European stock markets also saw significant gains yesterday. The London FTSE index strengthened by 1.46 percent, to 6,430 points, while the Frankfurt DAX jumped 1.99 percent, to 8,685 points, and the Paris CAC rose 2.21 percent, to 4,218 points.