Stocks stopped a three-day slide on Wednesday, but the market is likely to get hit in the coming session after Moody's said it could cut the United States' prized triple-A credit rating.
Stock index futures dropped sharply after Moody's Investors Service said it may cut the United States' triple-A rating due to the rising chance its $14.3 trillion debt ceiling may not be raised by the August 2nd deadline. Failure to increase the country's borrowing limit in time would result in a U.S. default, which could roil financial markets.
Concerns about the debt ceiling have been a headwind for equities as no budget deal has been brokered. S&P futures slumped on the news but recovered modestly, and were down 4.8 points, or 0.4 percent.
What has been beginning to spook Moody's and some other people is that Congress may be dumb enough to actually default on the debt, said Cliff Draughn, chief investment officer of Excelsia Investment Advisors in Savannah, Georgia. Clearly any instability of a large nation with the world's reserve currency defaulting on its debt -- it's never happened before.
In Wednesday's session, the three major U.S. stock indexes rose more than 1 percent at their peaks after Fed Chairman Ben Bernanke suggested the Fed would consider additional measures to support the economy if the outlook gets worse. Energy and materials stocks led gains, but the rally fizzled in afternoon trading.
Bernanke's comments were a positive this morning, but we had a little too much happiness early on, said Richard Sichel, chief investment officer of Philadelphia Trust Co. The comments were not upbeat by any means, and obviously, no one wants the economy to get to the point where more stimulus is needed.
The Fed's $600 billion bond-buying effort, known as QE2, has contributed to huge equity gains since September.
In testimony to the House Financial Services Committee, Bernanke said the recent economic weakness may prove more persistent than expected ... implying a need for additional policy support.
Stock investors had put a low probability on any more stimulus from the Fed, but June's dismal jobs report altered some perceptions.
The CBOE Volatility Index <.VIX>, Wall Street's fear gauge, ended up just 0.2 percent after dropping nearly 9 percent to a session low on the Fed chairman's comments. Over the past three days, the VIX had climbed almost 25 percent while the S&P 500 lost about 2.3 percent, pressured by weak earnings and concerns over Europe's debt crisis.
The Dow Jones industrial average <.DJI> rose 44.73 points, or 0.36 percent, to close at 12,491.61. The Standard & Poor's 500 Index <.SPX> gained 4.08 points, or 0.31 percent, to 1,317.72. The Nasdaq Composite Index <.IXIC> advanced 15.01 points, or 0.54 percent, to 2,796.92.
YUM UP LATE, OIL STOCKS RISE
After the closing bell, Yum Brands Inc
During the regular session, News Corp
News Corp is at the center of allegations that one of its tabloid newspapers committed criminal acts.
Energy and material stocks were the top gainers, though they were off their highs as crude oil cut its gains. The S&P energy sector index <.GSPE> rose 0.7 percent, while August crude futures gained 62 cents, or 0.6 percent, to settle at $98.05 a barrel. Baker Hughes Inc
Shares of JPMorgan Chase & Co
Wall Street got an early boost from overseas data that showed China's economy grew faster than expected in the second quarter, but there was still caution over developments in Europe. Moody's downgraded Ireland's debt to junk late on Tuesday and said Ireland was likely to follow Greece in needing a second bailout. Irish bond yields jumped to record highs.
Volume was light, with about 6.83 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below last year's daily average of 8.47 billion.
Advancing stocks outnumbered decliners on the New York Stock Exchange by a ratio of about 2 to 1, while on the Nasdaq, about nine stocks rose for every four that fell.
(Reporting by Ryan Vlastelica; Additional reporting by Chuck
Mikolajczak; Editing by Jan Paschal)