The S&P 500 rebounded strongly to end higher Wednesday, after Republican lawmakers softened their stance on a debt ceiling extension, paving the way to a possible deal that would avoid the U.S. defaulting on its debt.
The S&P 500 rose 0.41%, the Dow Jones Industrial Average climbed 0.30% or 102 points, the Nasdaq was up 0.47%.
Senate Minority Leader Mitch McConnell said he would support extending the debt limit extension into December to give the Democrats more time to raise the ceiling. The Treasury Department has indicated the debt ceiling would need to be raised by Oct. 18 for the U.S. to avoid running out of money.
"This will moot Democrats’ excuses about the time crunch they created and give the unified Democratic government more than enough time to pass standalone debt limit legislation through reconciliation," said McConnell in a statement.
As the clock ticked down on the Oct. 18 deadline, investors didn't appear eager to bet on a U.S. default as 5-year credit default swaps default risk pricing on the U.S. debt ceiling has only "edged up a smidge in the past 2-3 weeks and 4-week bill yields are little changed again this morning," Scotia Economics said.
Technology led the move, with megacap tech in the ascendency.
Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB), Microsoft (NASDAQ:MSFT), Amazon.com (NASDAQ:AMZN), and Alphabet (NASDAQ:GOOGL) were in the green.
The upside in the broader market was stifled, however, by fall in energy, paced by a decline in oil prices after disappointing U.S. weekly petroleum data and reports the U.S. is considering releasing emergency oil supplies.
Crude inventories increased by 2.346 million barrels last week, compared with analysts' expectations for a draw of 418,000 barrels.
Elsewhere in the energy complex, natural gas reversed its gains after Russian President Vladimir Putin said Russia is ready to supply more natural gas to ease the ongoing energy crunch.
The backdrop of rising energy prices has stoked investor fears that elevated inflation will persist just as the strength of the recovery remains doubt, potentially leading to stagflation.
These fears are playing out in the bond market, where the catalyst driving Treasury yields has switched from rising real yields to a "lift in breakevens – indicative of rising stagflation worries due to the rent lift in energy prices," Daiwa Capital Markets said in a note.
Breakeven inflation expectations on five-year Treasury Inflation-Protected Securities (TIPS) rose to 2.61%, the highest since late July, while the 10-year TIPS hit 2.45%, the highest since June.
Other cyclical sectors were also in the red including financials and industrials even as the data the economy created more private jobs last month.
ADP private payrolls climbed by 568,000 in September, beating economists estimates for a rise of 450,000, driven by hiring in service industries.
In other news, General Motors (NYSE:GM) unveiled a plan to double annual revenue and improved margins by the end of this decade.
Moderna (NASDAQ:MRNA) fell 9% after Sweden’s public health agency suspended use of the company’s Covid-19 vaccine for anyone born in and after 1991 because of increased risk of heart inflammation.