BLBG: U.S. Stock Futures Rise Before Earnings Amid Debt Debate
U.S. stock futures rose, after the Standard & Poor’s 500 Index fell to the lowest level in a month yesterday, as lawmakers sought to avoid a debt default and investors waited for the start of earnings season.
J.C. Penney & Co. climbed 6.4 percent as the retailer said its sales decline slowed in September. Talisman Energy Inc. rallied 6.4 percent as activist investor Carl Icahn said he has taken a 5.97 percent stake in the Canadian energy producer. Xerox Corp. slid 1.5 percent after announcing the U.S. has been probing the accounting practices of its outsourcing division.
Futures on the S&P 500 (SPX) expiring in December rose 0.2 percent to 1,670.30 at 8:36 a.m. in New York. Contracts on the Dow Jones Industrial Average added 19 points, or 0.1 percent, to 14,870.
“It has become clear that the level of vitriol in Congress is far higher than we’ve seen in past similar events,” John Haynes, head of research at Investec Wealth & Investment in London, said by phone today. “The market’s decided it shouldn’t have dismissed this quite as completely as it had done.”
The S&P 500 slumped 0.9 percent yesterday to a four-week low as lawmakers remained deadlocked over extending the nation’s debt limit to avoid a default.
Lawmakers began taking the first tentative steps toward a path to raising the U.S. debt limit even as the rhetoric between President Barack Obama and Republican leaders grew more divisive. Senate Democrats are planning a test vote before the end of this week on a measure that would grant Obama authority to raise the $16.7 trillion debt ceiling, probably for a year unless two-thirds of both chambers of Congress disapprove.
Debt Limit
The Treasury has said that it will exhaust measures to avoid exceeding the borrowing limit on Oct. 17. If that happens, the government will run out of cash to pay all of its bills at some point between Oct. 22 and Oct. 31, according to the Congressional Budget Office.
The government began on Oct. 1 its first shutdown in 17 years, placing as many as 800,000 federal employees on unpaid leave and closing some services, after lawmakers failed to reach an agreement on budgets before the start of a new fiscal year. As the shutdown delays the publication of some economic data, investors will turn their attention to companies’ financial results.
Alcoa Earnings
An earnings release from Alcoa (AA), America’s largest aluminum producer, marks the unofficial start of the U.S. quarterly reporting season after the close of New York trading today. JPMorgan Chase & Co. and Wells Fargo & Co. will also report this week.
Profits for the S&P 500 probably increased 1.7 percent during the third quarter while sales rose 2.2 percent, according to analysts’ estimates compiled by Bloomberg. Analysts anticipate earnings growth to accelerate to 8.9 percent in the final three months of the year, the data show.
“We cannot believe that the U.S. will drive full speed off the edge of the cliff, so we are looking past that,” Haynes said. “In the assumption it doesn’t cause too much damage in the next few weeks, the momentum in the world economy should improve next year, and with it earnings momentum.”
J.C. Penney climbed 6.4 percent to $8.20. The department-store chain working to rebound from a $985 million loss said its sales decline slowed in September and that the improvement will last through the end of the year.
Chief Executive Officer Mike Ullman is working to turn around the department-store chain after his predecessor’s failed attempt to transform J.C. Penney into a destination for younger, wealthier shoppers. Ullman has reinstituted sales events and revived popular private-label brands to lure consumers back into stores.
Talisman rallied 6.4 percent to $13.57 as Icahn said he has taken a 5.97 percent stake in the Canadian company and may seek talks with management as it struggles to sell assets.
McKesson Talks
McKesson (MCK) Corp. rose 3.3 percent to $133.85. The largest U.S. drug distributor is in advanced talks with majority shareholder Franz Haniel & Cie GmbH to buy German drug wholesaler Celesio AG for almost 22 euros a share, Dow Jones reported, citing unidentified people.
Spokesmen for Celesio and Haniel declined to comment. Representatives of McKesson couldn’t be immediately reached for comment.
Amazon.com Inc. (AMZN) added 0.9 percent to $312.79 after winning a court ruling over a $600 million Central Intelligence Agency cloud-computing contract. Amazon defeated International Business Machines Corp.’s effort to reopen bidding for the contract as Judge Thomas Wheeler of the U.S. Court of Federal Claims in Washington granted Amazon’s request for judgment on the administrative record following a hearing yesterday.
IBM was unchanged at $181.99.
Xerox dropped 1.5 percent to $10.24. The U.S. Securities and Exchange Commission has been probing the accounting practices of Affiliated Computer Services Inc., an outsourcing company acquired in 2010, Xerox said in a regulatory filing. The SEC focused on whether revenue from ACS equipment and resale transactions should have been recorded on a net rather than gross basis, Xerox said in the filing.
To contact the reporter on this story: Inyoung Hwang in London at ihwang7@bloomberg.net
To contact the editors responsible for this story: Andrew Rummer at arummer@bloomberg.net; Lynn Thomasson at lthomasson@bloomberg.net
