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Closing Market Summary: Stocks Climb With Hopes For Budget Deal Flying High

Once again, equity indices posted modest gains even as the agreement to end the partial government shutdown and extend the debt ceiling remained elusive. The S&P 500 added 0.4%, extending its year-to-date gain to 19.9%.

Stocks slumped at the open after the weekend ended without any concrete progress in Washington. Despite the opening weakness, dip-buyers were quick to step in, drawing encouragement from late-morning reports indicating a bipartisan meeting was scheduled to take place at the White House at 15:00 ET.

The rebound continued into the afternoon with upbeat quotes from lawmakers providing additional support. On that note, Senate Majority Leader Harry Reid said he is ‘very optimistic' that an agreement will be reached this week. Similar remarks were made by Minority Leader Mitch McConnell who said "I share Senator Reid's optimism." A brief slip ensued during the final 90 minutes of the session when the White House meeting was postponed in order to allow more time for talks. Strikingly, the market did not appear too concerned with the cancellation as the major averages ended the session on their highs. Eight of ten sectors posted gains while telecom services (-0.7%) and utilities (-0.6%) spent the day in negative territory. On the upside, the technology sector (+0.5%) fueled much of the session-long rebound as top components rallied. Apple (AAPL 496.04, +3.23), Google (GOOG 876.11, +4.12), and Microsoft (MSFT 34.45, +0.32) settled with gains between 0.5% and 0.9%. Netflix (NFLX 324.36, +23.51) also displayed strength, surging 7.8% after reports indicated the company is exploring making its service available through cable set-top boxes. In addition, the company said it entered into a production deal with Sony (SNE 19.93, -0.03).

The outperformance of tech shares helped the Nasdaq end ahead of the broader market. The index also drew strength from biotechnology as the iShares Nasdaq Biotechnology ETF (IBB 202.30, +1.52) ended higher by 0.8% after weighing on the tech-heavy index in early going. Elsewhere, the energy sector (+0.6%) displayed relative strength as crude oil added 0.2% to $102.22 per barrel. Meanwhile, other commodities also posted gains. Gold futures rose 0.3% to $1272.50 per troy ounce and copper futures climbed 0.9% to $3.30 per pound. The Treasury market was closed for Columbus Day, and the holiday had a visible impact on trading volume as only 575 million shares changed hands on the floor of the New York Stock Exchange. Tomorrow, the October Empire Manufacturing Survey will be released at 8:30 ET.

US SENATE LEADERS 'MAKING PROGRESS,' BUT STILL SEEK AGREEMENT ON TWO KEY POINTS - LENGTH OF BOTH DEBT CEILING HIKE AND GOV'T FUNDING BILL-SENIOR DEMOCRATIC AIDE - RTRS

Shutdown Likely to Prolong Fed's Stimulus

Economists Push Back Expectations for Reduction in Bond Buying

The government shutdown and debt-ceiling fight are clouding the outlook for the global economy and markets, but they are bringing clarity to one area: The Federal Reserve is now likely to keep its foot on the monetary gas pedal even longer to offset damage from the standoff.

Two weeks into the shutdown, some of the fallout is clear. Economic growth will be at least a little slower than it would have been otherwise. Businesses and consumers are less confident about the economy's near-term course than they were before the shutdown started. And the most closely watched official gauges of economic activity—the government reports suspended by the shutdown—will be unlikely to provide reliable readings for months.

That's a meaningful—though still manageable—hit to the beleaguered U.S. recovery. An uglier ending to the still-unresolved battle over raising the debt ceiling, or an even longer government shutdown, could wreak worse damage.

The latest events in Washington make Fed officials appear unusually clairvoyant in their decision last month to keep their $85 billion-a-month bond-buying program unchanged despite widespread market expectations of a pullback.

Many U.S. central bankers have tended to be too optimistic in recent years, expecting a stronger economic recovery than they ended up getting.

This time, they wouldn't allow themselves to be fooled. Fed officials cited "the considerable risks surrounding fiscal policy" as one reason to leave policy unchanged, according to minutes of the Federal Open Market Committee's September meeting, released last week.

The considerable uncertainty about the economy has led private-sector forecasters to push back their own expectations for a change in Fed policy.

In the latest Wall Street Journal survey of economists none of the 46 respondents expected the Fed to announce a change to its bond purchases at its Oct. 29-30 meeting. In the survey a month earlier, two-thirds had expected at least some reduction in September or October.

The latest survey, conducted this month after the shutdown started, showed 37 out of 46 economists now expecting a Fed pullback on the bond-buying program to begin in December or January.

But many economists acknowledged it is more of a guess than usual with the shutdown and debt-ceiling fight unresolved. "Not even the FOMC knows when its tapering will begin," said Credit Suisse chief economist Neal Soss , who penciled in a January reduction.

The realities of the calendar make the possibility of an even later pullback by the Fed plausible.

Whenever the government finally reopens, it isn't clear whether it will be able to produce economic data covering the month of October. Even if it does, the economic volatility from the shutdown will cause reports covering October, November and possibly December to be head-scratchers given the one-time hits over that period.

In its late-January meeting, the Fed could conceivably be in the position of deciding whether to pull back just days before a new leader would be sworn in on Feb. 1. President Barack Obama nominated Fed Vice Chairwoman Janet Yellen last week to succeed current Chairman Ben Bernanke.

"March to me seemed like the first high-probability date" for the Fed to start reducing its bond purchases, said Pierpont Securities chief economist Stephen Stanley. "All the shenanigans we're seeing on the political side may very well push it out further," he said.

Whether the recovery is strong enough to make the Fed comfortable pulling back five or six months from now is another matter. Mr. Bernanke has warned repeatedly that the Fed can't protect the economy from the full consequences of the fiscal follies.

The economy appeared to be holding up through September before the lights went off Oct. 1 at parts of the Labor and Commerce departments, which issue many of the government's most closely followed economic statistics.

But some private-sector signals are already flashing red.

Gallup's daily measure of consumer confidence on Sunday dropped to a new low for the shutdown. The recent decline is on the cusp of eclipsing the monthlong tumble during the September 2008 financial crisis.

Business executives also have said they are less likely to hire and invest as lawmakers debate whether defaulting on U.S. bills would be merely bad or disastrous for the U.S. economy.

Economists tend to be an optimistic bunch, expecting for years that a stronger recovery would be just around the corner. But the Journal's latest survey showed many more throwing in the towel, shifting their hopes to 2014.

"The thing that's been hard to time—and makes people in my line of work look silly—is the psychological turn that leads businesses to start hiring, leads consumers to feel comfortable to spend a bit more freely, or gotten investors more confident to make slightly more aggressive investments," said Carl Tannenbaum, chief economist at Northern Trust.

"All of those things eventually kick in," he said. "But boy, it has taken a frustratingly long time."

With political battles again diminishing the benefits of monetary policy, the wait may be even longer.

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The Nobel Prize for economics has been awarded to Americans Eugene F. Fama, Lars Peter Hansen and Robert J. Shiller for their work on the empirical analysis of asset prices.

The prize, awarded by the Swedish Riksbank in memory of Alfred Nobel, went to the scholars for their work on how the value of assets, such as stocks and bonds, vary over time.

The decision by the Nobel committee goes at the heart of the current macroeconomic debate over the crisis.

Eugene Fama, from the University of Chicago, showed that stock picks are extremely hard to predict in the short run and that new information is quickly incorporated into their prices. He is considered the father of the so-called “efficient market hypothesis”, a theory which has come under intense criticism following the huge swings observed in the stock market before and after 2008.

Robert Shiller, from Yale University, has found that stock prices fluctuate more than corporate dividends. The ratio of prices to dividends tends to fall when it is high and to increase when it is low.

Lars Peter Hansen, also from the University of Chicago, developed statistical methods that are suited to testing rational theories of asset prices.

Gapping down

In reaction to disappointing earnings/guidance: SPN -4.3% (ticking lower).

Select solar stocks trading lower: SOL -4.3%, STP -4.1% (provides updates on GSF assets in Brindisi, Italy), SPWR -3.4%, YGE -2.7%, TSL -2.6%, CY -2.5%, GLNG -2.3%, FSLR -0.9%, .

SelectChina internet related names showing early weakness: RENN -3.7%, QIHU -2.2%, BIDU -1.9%, YOKU -1.9%, SINA -1.2%, .

Other news: TSLA -2.1% (still checking), TTM -1.6% (reports out indicate Sept sales decline), TEVA -1.6% ( trading lower on reports of Union strike), PBPB -1.5% (Potbelly modestly lower on cautious Barron's mention), SAP -1.2% (still checking), FB -0.9% (plans to acquire mobile analytics startup Onavo, according to reports), AIG -0.9% (still checking), AAPL -0.6% (Apple and Samsung may be developing 12 inch size tablets, according to reports).

Analyst comments: ERIC -3.2% (downgraded to Underweight from Equal Weight at Barclays ), EXPE -2.8% (downgraded to Hold from Buy at Deutsche Bank), RBS -2% (Royal Bank of Scotland downgraded to Underperform from Neutral at BofA/Merrill ), DEO -1.2% (downgraded to Sell from Hold at Investec), COH -0.7% (downgraded to Hold at Canaccord Genuity), DEG -0.6% (downgraded to Underperform from Hold at Jefferies )

Gapping up

Metals/mining stocks trading higher: NOR +6.1%, HMY +2.9%, MT +2.6%, AU +2%, SLW +1.7%, PAAS +1.6%, HL +1.6%, SLV +1.6%, AEM +1.3%, GLD +1.1%, ABX +1%.

Other news: PLX +5.4% ( announces positive Phase I clinical trial results for Oral GCD in Gaucher disease patients), FU +2.8% (move attributed to positive mention by Jim Rogers in Barron's interview; HOLI also mentioned positively), NFLX +1.9% (Netflix in discussions with Comcast (CMCSA) and other cable cos to make service available through set top boxes, according to reports), KLIC +1.1% (Kulicke & Soffa ticking higher following positive Barron's mention), MNKD +1% ( resubmits new drug application to U.S. FDA for AFREZZA for the treatment of adults with diabetes), TEF +0.3% (Telefonica S.A. modestly higher on reports that the co is selling its Czech phone stake), TD +0.2% (Toronto-Dominion Bank considering bid for RBS's US retail banking business for GBP 8 bln, according to reports ).

Analyst comments: MT +1.9% (upgraded to Outperform from Neutral at Macquarie), AMD +1.6% (upgraded to Outperform from Neutral at Wedbush), THOR +1.3% (upgraded to Buy from Neutral at Goldman), CTCM +0.9% (upgraded to Buy from Hold at Deutsche Bank)

PITTSBURGH, Pa.--Consol Energy Inc. (CNX), one of the world's oldest coal companies, is exploring ways to significantly reduce its coal holdings and focus more on natural gas.

Company executives have felt its stock was undervalued in part because of its historic dependence on coal, and have been exploring ways for the 150-year-old firm, whose stock has fallen about 33% from its 2011 high, to optimize its value

Under consideration, according to people familiar with the matter, is splitting up its coal and gas assets, and having them traded separately. Consol has invested heavily in the natural gas market in recent years, including a $3.5 billion purchase of Dominion Resources' Appalachian gas business to take advantage of the shale gas boom.

Another scenario is selling about half of its coal capacity, mainly that tied to the utility markets, and retaining those linked to the export market and steel, such as the Buchanan mine in Mavisdale, Va., which last year produced 3.5 million tons of metallurgical coal. It could later sell its remaining coal holdings if it found buyers at the right price and if the market seemed to favor its retrenchment. A third scenario is selling all of the coal assets outright, which are valued at $6.5 billion, but those close to the company said Consol would like to be able to retain some of its more profitable coal operations.

In a statement, the company confirmed "that the evaluation process regarding our corporate structure continues and all options are being considered. There can be no assurance that any particular option will be pursued." In July, CEO J. Brett Harvey said that the case for investors had become "confusing" because of the multiplicity of assets. The company, he went on, needs to "let our shareholders bask in the value of all these assets, whether it is by sale or structure, and we're working on that right now."

Most likely buyers would be those domestic coal companies that are familiar with the U.S market and have mines and infrastructure close to Consol's 12 Appalachian mining complexes. Coal analysts say likely buyers for Consol's coal mines include Chris Cline's Foresight Energy LLC, Alliance Resource Partners LP, and Murray Energy as possible buyers. A representative for Mr. Cline said he couldn't be reached. Alliance and Murray did not return requests for comment.

Getting out of the coal business would mark a historic pivot for the company, which started mining during the Civil War, mainly in Appalachia. The move would also follow a larger national trend toward greater reliance on cheaper, cleaner-burning natural gas.

KPN Is Still Takeover Candidate If Slim Cancels Bid, VEB Says By Martijn van der Starre

There will be enough candidates interested in KPN if Carlos Slim’s America Movil withdraws its offer, Dutch shareholder group VEB says on its website.

Campari on hunt for buys

Campari, the listed Italian alcoholic drinks manufacturer, is looking to make buys, company' CEO Bob Kunze-Concewitz said in an interview with La Stampa. Kunze-Concewitz said that as part of its general strategy, half of Campari's growth would come from acquisitions.

Kunze-Concewitz added that Campari is looking to buy brands and then build structures on those brands in order to achieve critical mass in markets such as the US, Eastern Europe and other European countries.

The report noted that Campari has up to EUR 500m to 600m to make purchases.

Source La Stampa