NEW YORK – Wall Street thinks Washington’s gridlock could be easing.
Stocks posted modest gains Friday, driven by budding optimism among traders that Washington’s bickering politicians can reach an agreement on the budget and on increasing the government’s borrowing limit soon.
“Call it ‘modest optimism,’ ” said Frank Davis, director of sales and trading at LEK Securities.
The stock market rose for just the third time in 12 days.
The Dow Jones industrial average closed up 76.10 points, or 0.5 percent, at 15,072.58.
The Standard & Poor’s 500 index rose 11.84 points, or 0.7 percent, at 1,690.50, and the Nasdaq composite index gained 33.41 points, or 0.9 percent, at 3,807.75.
Traders aren’t expecting a miracle. The rhetoric between Democrats and Republicans remains as hot as ever, but pressure to end the shutdown and raise the debt ceiling is climbing quickly.
“The thought is that the Republicans and Democrats will soon work this out before Oct. 17,” Davis said, referring to the date the Treasury Department said the government’s borrowing authority would be exhausted.
Despite Friday’s gains, the trend for the last three weeks in the stock market has been lower. The Dow is down nearly 4 percent since hitting an all-time high Sept. 18.
Not all parts of the market were optimistic Friday. Yields for the one-month T-bill that mature around the time the U.S. government is expected to hit its borrowing limit have risen to their highest level in a year. The yield on one-month T-bill was 0.12 percent, up sharply from 0.01 percent five days ago.
Bond market observers said that fund managers for money market funds, who primarily invest in these types of securities, have been selling short-term Treasuries.
Fund managers don’t want to be stuck holding U.S. government debt maturing around the time the federal government hits its borrowing limit.
Average investors have also been moving out of riskier assets as well. Roughly $300 million was pulled from stock mutual funds last week, according to fund tracking firm Lipper. It was the first time this year that mutual funds saw net outflows, Lipper said. Exchange-traded funds also saw investors head toward the exits, with $2.8 billion leaving ETFs last week.
“We have seen a pullout of (stocks) and investors moving to cash,” said Kristina Hooper, head of U.S. investment strategies at Allianz Global Investors. “We’re very focused on being there, holding our client’s hand and helping them think about the long-term so they’re not getting rattled by what is short-term event.”