Stocks edge higher as Wall Street shakes off volatility

Stocks recovered from an early slide on Wall Street to close with modest gains Wednesday as investors held out hope that Congress may yet be able to temporarily extend the federal government’s debt ceiling and buy lawmakers time to reach a more permanent resolution.

The market rallied back from a morning loss shortly after Senate Republican leader Mitch McConnell offered Democrats an emergency short-term extension to the federal debt ceiling into December.

Financial markets have mostly taken the debt-ceiling drama in stride, expecting yet another 11th hour solution, but some voices on Wall Street have warned investors to make preparations for a default, even if it is unlikely, given how extremely damaging it would be to the economy and markets.

“People were nervous about the debt ceiling,” said Jay Hatfield, CEO of Infrastructure Capital Advisors.

The S&P 500 rose 17.83 points, or 0.4 percent, to 4,363.55. The benchmark index had been down 1.3 percent earlier. Gains in technology stocks, makers of household goods and communication companies offset losses in energy and other sectors. About 57 percent of stocks in the index rose. The S&P 500 had risen or fallen more than 1 percent on each of the past four days.

The Dow Jones Industrial Average rose 102.32 points, or 0.3 percent, to 34,416.99. The blue-chip index had been down more than 450 points in the early going. The Nasdaq gained 68.08, or 0.5 percent, to 14,501.91. The tech-heavy index had been down 1.2 percent before the afternoon rally.

Small-company stocks, a gauge of confidence in economic growth, fell: The Russell 2000 index gave up 13.36 points, or 0.6 percent, to 2,215.

If the nation’s debt ceiling, which caps the amount of money the federal government can borrow, isn’t raised by Oct. 18, the country “would likely face a financial crisis and economic recession,” Treasury Secretary Janet Yellen told Congress last week.

The latest bout of market volatility comes as investors question the economy’s path forward, amid rising inflation and the ongoing impact from the virus pandemic. Bond yields have remained relatively stable since a sharp jump late last month that signaled concern that high inflation could linger longer than economists and investors had initially anticipated.

Bond yields rose broadly. The yield on the 10-year Treasury held steady at 1.53 percent. It was as low as 1.32 percent a little more than two weeks ago.

Energy prices retreated from a recent rally that contributed to inflation fears. U.S. crude oil fell 1.9 percent and natural gas plunged 10.1 percent. The drop weighed on energy companies. Exxon Mobil fell 1.8 percent.

Wall Street is also still closely watching the Federal Reserve for any shift in timing for raising interest rates. Analysts have said that the central bank could act sooner than expected if high inflation persists.