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Dow rises 68 points after Pelosi and Schumer agree to debt limit increase

CNBC logo CNBC 9/6/2017 Fred Imbert

U.S. stocks rose on Wednesday after a statement from two top Congressional leaders said they are prepared to vote in favor of a three-month debt limit increase.

The Dow Jones industrial average traded about 68 points higher, with Home Depot and Goldman Sachs contributing the most to the gains.

The S&P 500 gained 0.2 percent, with energy and financials among the best performers. However, shares of United Continental Holdings and Newell Brands were among the worst performers in the S&P 500.

United cut its unit revenue and pre-tax margin guidance for this quarter, citing Hurricane Harvey. Newell Brands, meanwhile, issued a statement saying "nearly all" of its resin suppliers in Louisiana and Texas are shut down because of Harvey.

The Nasdaq composite traded flat after a higher open as shares of large-cap tech stocks pulled back slightly.

In a joint statement, Senate Minority Leader Chuck Schumer and House Minority Leader Nancy Pelosi, both Democrats, said:

"Democrats are prepared to offer our votes for the Harvey aid package, and a short term debt limit increase of three months. Given Republican difficulty in finding the votes for their plan, we believe this proposal offers a bipartisan path forward to ensure prompt delivery of Harvey aid as well as avoiding a default, while both sides work together to address government funding, DREAMers, and health care."

Investors have been fretting about the possibility of a government shutdown if the debt limit wasn't raised. This statement gives some investors hope that a shutdown could be avoided.

Dave Lutz, head of ETF trading at JonesTrading, pointed out that the yield in the one-month T-Bill pulled back sharply after the Schumer-Pelosi statement was released. He added the move shows investors now see a higher possibility of a deal being struck on the debt ceiling.

However, House Speaker Paul Ryan, a Republican, said the Democrats' proposal is "ridiculous" and "unworkable." The three major indexes pared their gains after Ryan's comments. If a deal is not reached, it could lead to a government shutdown, which would be catastrophic, Standard & Poor's said last week.

Also contributing to the gains Tuesday was a rebound in financials. The sector rose 0.6 percent a day after posting its worst session since May 17. Shares of Goldman Sachs advanced 1.4 percent while Bank of America's stock rose 0.6 percent.

The rebound came a day after the Dow and the S&P posted their worst sessions since Aug. 17. Stocks pulled back sharply amid rising tension between North Korea and the West.

"As far as North Korea is concerned, the template has been it intensifies and then it levels off. When it levels off, it becomes a buying opportunity," said Quincy Krosby, chief market strategist at Prudential Financial. "But the issue with North Korea is not going away."

North Korea tested a hydrogen bomb on Sunday. The test, which was condemned by the international community, led investors to increase their exposure to traditional safe havens like gold. Gold futures for December delivery rose 0.1 percent to trade at $1,344.90 per ounce, hovering near a one-year high.

Wall Street also paid attention to U.S. interest rates after the benchmark 10-year yield hit its lowest level of the year in the previous session. The move lower came after Federal Reserve Gov. Lael Brainard said the central bank should be cautious in raising rates while inflation remained weak.

Brainard's comment came at a time when investors are assessing the possibility of another Fed rate hike later this year. Market expectations for a December rate hike are just 32 percent, according to the CME Group's FedWatch tool.

Investors also looked ahead to the conclusion of the European Central Bank's latest monetary policy meeting, which is set for Thursday.

Fed Chair Janet Yellen and ECB President Mario Draghi "seem committed to tightening, both quantitatively and via interest rates, but monetary conditions will remain fairly stimulative so long as inflation does not become a problem," said Charles Dumas, chief economist at TS Lombard, in a note to clients.

In other central bank news, Fed Vice Chairman Stanley Fischer said Wednesday he would be stepping down from his post effective Oct. 13.

In economic news, international trade numbers showed the U.S. trade deficit for July came in at $43.7 billion, below the expected $44.7 billion. Other data released include the IHS Markit PMI for August, which hit 56.0 and the ISM non-manufacturing index, which was in line with expectations.

Another big major data point is set to be released at 2 p.m. ET, which is the latest publication of the Federal Reserve's Beige Book.


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