Closing Bell: Stocks Rise on Optimism About a Debt Ceiling Deal

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Stocks Rises As Optimism Grows On Impasse In Washington
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Signs that lawmakers in Washington were moving closer to reaching an agreement over the debt ceiling and the government shutdown helped push stocks higher during volatile trading Monday, reversing earlier losses.

The Dow Jones industrial average (^DJI) rose 64 points, or 0.4 percent, to close at 15,301, though the blue chip index had been down as much as 100 points earlier in the day. The Standard & Poor's 500 index (^GSPC) added 7 points, or 0.4 percent, at 1,710 and the Nasdaq composite (^IXIC) rose 23 points, or 0.6 percent, to 3,815.

President Barack Obama was scheduled to meet with several congressional leaders, and while the White House said the meeting had been delayed, signs of negotiations were taken as a positive by the market.

Senate Majority Leader Harry Reid (D-Nev.) and Senate Minority Leader Mitch McConnell (R-Ky.), who began talks on Saturday, appeared together on the Senate floor and expressed optimism a deal could be made final within days.

The United States will reach the limit of its borrowing authority Thursday, according to estimates from the Treasury Department. %VIRTUAL-article-sponsoredlinks%If the debt ceiling isn't raised, investors fear the U.S. could default on its borrowings in the coming weeks.

Stocks rose sharply late last week on news that progress had been made in talks between House Republicans and the White House.

In Monday action, bond trading was closed for Columbus Day. In commodities trading, benchmark crude for November delivery rose 39 cents to $102.41, while gold rose $7.00, or 0.5 percent, to $1,275.

In corporate news, Netflix (NFLX) shares rose 7.8 percent at $324.44 after The Wall Street Journal reported that the company is in talks with several U.S. cable television companies, including Comcast (CMCSA, CMCSK) and Suddenlink Communications, to make its streaming video service available through their set-top boxes.

South Korean tire-maker Hankook announced plans to build its first North American plant in Tennessee, creating 1,800 jobs. The world's seventh-largest tire maker said it will build the $800 million facility in Clarksville, where Japanese tire maker Bridgestone has a steel cord plant. Nissan, General Motors (GM) and Volkswagen have assembly plants in Tennessee, and more than 900 other automotive sector companies are active in the state.

More Stocks in the News:
  • Advanced Micro Devices (AMD) shifted higher after a Wedbush analyst upgraded the stock to "Outperform" form "Neutral," saying the chip maker should finish 2013 in strong form. The stock advanced 3.7 percent to $3.97.
  • Expedia (EXPE) shares fell more than 6 percent at $48.51 after a rating cut by Deutsche Bank (DB).
  • Merck (MRK) fell 53 cents, or 1.1 percent, to $46.76 after another analyst lowered his rating on the drug developer, which recently announced job cuts and is dealing with the expiration of patents protecting some of its key products.
  • Washing machine manufacturer Whirlpool (WHR) fell 6.5 to $131.28, after a note from Cleveland Research pointed to softening demand for appliances.
  • Amarin (AMRN) shares lost 9 cents to $5.00 Monday, despite analysts saying that regulators will probably grant a broader marketing approval for Amarin's triglyceride drug Vascepa. A panel of Food and Drug Administration advisers is scheduled to review Vascepa, a fish oil drug, Wednesday.
  • FICO (FICO) slipped 4.7 percent to $54.66 after the company cut its fiscal full-year earnings and revenue forecasts. The provider of credit scores and analysis technology for businesses now foresees full-year earnings of $2.47 to $2.51 a share on fiscal 2013 revenue of $741 million to $743 million.
  • Benefitfocus (BNFT) climbed 15.2 percent to $48.21 after two analysts started coverage of the human resources software provider with a "Buy" rating, saying the company is likely to capitalize during a time of big changes in the health care sector. Benefitfocus, based in Charleston, S.C., went public in September.
What to Watch Tuesday:
  • The Federal Reserve Bank of New York releases its survey of manufacturing activity for October at 8:30 a.m. Eastern time.
These major companies are scheduled to report quarterly financial results:
  • Coca-Cola (KO)
  • Johnson & Johnson (JNJ)
  • Citigroup (C)
  • Yahoo (YHOO)
  • Domino's Pizza (DPZ)
  • Charles Schwab (SCHW)
  • Intel (INTC)
  • CSX (CSX)
-Compiled from staff and wire reports.

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If You Only Know 5 Things About Investing, Make It These
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Closing Bell: Stocks Rise on Optimism About a Debt Ceiling Deal

Warren Buffett is a great investor, but what makes him rich is that he's been a great investor for two thirds of a century. Of his current $60 billion net worth, $59.7 billion was added after his 50th birthday, and $57 billion came after his 60th. If Buffett started saving in his 30s and retired in his 60s, you would have never heard of him. His secret is time.

Most people don't start saving in meaningful amounts until a decade or two before retirement, which severely limits the power of compounding. That's unfortunate, and there's no way to fix it retroactively. It's a good reminder of how important it is to teach young people to start saving as soon as possible.

Future market returns will equal the dividend yield + earnings growth +/- change in the earnings multiple (valuations). That's really all there is to it.

The dividend yield we know: It's currently 2%. A reasonable guess of future earnings growth is 5% a year. What about the change in earnings multiples? That's totally unknowable.

Earnings multiples reflect people's feelings about the future. And there's just no way to know what people are going to think about the future in the future. How could you?

If someone said, "I think most people will be in a 10% better mood in the year 2023," we'd call them delusional. When someone does the same thing by projecting 10-year market returns, we call them analysts.

Someone who bought a low-cost S&P 500 index fund in 2003 earned a 97% return by the end of 2012. That's great! And they didn't need to know a thing about portfolio management, technical analysis, or suffer through a single segment of "The Lighting Round."

Meanwhile, the average equity market neutral fancy-pants hedge fund lost 4.7% of its value over the same period, according to data from Dow Jones Credit Suisse Hedge Fund Indices. The average long-short equity hedge fund produced a 96% total return -- still short of an index fund.

Investing is not like a computer: Simple and basic can be more powerful than complex and cutting-edge. And it's not like golf: The spectators have a pretty good chance of humbling the pros.

Most investors understand that stocks produce superior long-term returns, but at the cost of higher volatility. Yet every time -- every single time -- there's even a hint of volatility, the same cry is heard from the investing public: "What is going on?!"

Nine times out of ten, the correct answer is the same: Nothing is going on. This is just what stocks do.

Since 1900 the S&P 500 (^GSPC) has returned about 6% per year, but the average difference between any year's highest close and lowest close is 23%. Remember this the next time someone tries to explain why the market is up or down by a few percentage points. They are basically trying to explain why summer came after spring.

Someone once asked J.P. Morgan what the market will do. "It will fluctuate," he allegedly said. Truer words have never been spoken.

The vast majority of financial products are sold by people whose only interest in your wealth is the amount of fees they can sucker you out of.

You need no experience, credentials, or even common sense to be a financial pundit. Sadly, the louder and more bombastic a pundit is, the more attention he'll receive, even though it makes him more likely to be wrong.

This is perhaps the most important theory in finance. Until it is understood you stand a high chance of being bamboozled and misled at every corner.

"Everything else is cream cheese."
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Markets

S&P 500 2,263.69 -8.20 -0.36%
DJIA 19,732.40 -72.32 -0.37%
NASDAQ 5,540.08 -15.57 -0.28%
DAX 11,616.03 19.14 0.17%
HANG SENG 22,885.91 -164.05 -0.71%
NIKKEI 225 19,137.91 65.66 0.34%
USD (per EUR) 1.06 0.00 -0.25%
USD (per CHF) 1.01 0.00 0.22%
JPY (per USD) 115.34 0.37 0.32%
GBP (per USD) 1.23 -0.01 -0.56%

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