(Bloomberg) — Stocks whipsawed in heavy trading as Republicans were poised to offer Democrats a way to end the debt limit impasse.
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The S&P 500 was higher Wednesday after falling more than 1%, while the Nasdaq 100 gained after a decline earlier. Senate Minority Leader Mitch McConnell has said he plans to offer Democrats a short term debt ceiling increase that should last into December.
The turbulence comes as the benchmark S&P 500 has logged four straight days of 1% moves amid a growing list of concerns including the debt ceiling, inflation, and surging energy prices. European equities also halved losses as natural gas prices — up as much as 40% at one point — turned lower after Russia’s President Vladimir Putin said the country is ready to help.
“With latest news that Republicans are willing to come to the table and negotiate an extension, equities (and yields) have rallied back,” Anna Han, a Wells Fargo Securities strategist, said in an email. “It’s certainly not all peachy, but it does bring short-term relief to one of the various macro risks we have been watching.”
The moves also follow optimism ahead of Friday’s U.S. nonfarm payrolls after an ADP employment report beat expectations. The rise in private sector jobs has cemented expectations the Federal Reserve will begin tapering bond purchases next month. The yield on the 10-year Treasury note was little changed.
“To be sure, the beat on private payroll numbers is a positive but there’s no shortage of catalysts out there that could move the market: surging energy prices, debt ceiling impasse,” said Mike Loewengart, managing director of investment strategy at E*Trade Financial. “And positive labor market data comes with the implication that the Fed can tighten policy at a quicker pace. But the fact that hiring is up, shouldn’t be discounted. It’s definitely a good thing in terms of recovery.”
A strong employment report could assuage worries about ongoing hiring challenges during the U.S.’s economic recovery. However, markets remain volatile on concerns elevated inflation may persist longer than the central bank expects, especially in the face of an energy crunch this winter.
“With a global energy supply problem looming into the winter months, inflation is likely to broaden, especially because natural gas is a key ingredient in plastic manufacture,” wrote Axonic Capital’s Peter Cecchini in a note. “After years of going nowhere fast, natural gas prices are at the highest since 2008. The big question: how will the Fed react?”
If job gains in the ADP data does translate to Friday’s report from the labor department, analysts expect the Fed to announce plans to cut back its asset-purchase program in early November. Fed chair Jerome Powell said he was looking for “decent” job growth.
A U.S. labor shortage has meant fewer hours open for businesses like restaurants while some assembly lines have also closed due to lack…
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