Stocks staged an impressive recovery Thursday, with the S&P 500 setting a fresh high and the Dow erasing a triple-digit loss to finish near the flatline, as markets focused on earnings, a day after the budget deal in Washington ended the government shutdown and cleared the way to raise the debt ceiling.
"You don't have to worry about the government anymore, and a couple of speed bumps are out of the way," said Dan Greenhaus, chief global strategist at BTIG.
The Dow Jones Industrial Average pulled off a stunning comeback, finishing just 2 points down after dropping 150 points at the opening and being down sharply for most of the day.
The small-cap Russell 2000 index hit a new all-time record and the CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell near 13.
Most key S&P sectors turned higher, led by telecoms and materials, while techs held modest losses. IBM was the biggest laggard on the blue-chip index, as its stock dropped over 6 percent after the tech company posted a 4-percent drop in third-quarter revenue.
But with corporate earnings becoming the main focus of the exchanges again, the budget stalemate in Washington faded into the background. The deal reached on Wednesday will fund government agencies until Jan. 15 and extend the government's ability to borrow until Feb. 7.
"There were some gyrations along the way, but I think things had been priced in all along because people were expecting a deal in the end—we'll now be focusing on third-quarter earnings and fourth-quarter guidance," said Matt Kaufler, portfolio manager of the Clover Value Fund at Federated Investors. "We're likely to see further choppiness in the market, but I'd say we still have room for another 5 to 7 percent upside from here until year end."
President Obama said the government shutdown slowed economic growth and damaged America's credibility. "There are no winners here — these last few weeks have inflicted completely unnecessary damage on our economy," he said. "We don't know yet the full scope of the damage, but every analyst out there believes it slowed our growth."
The dollar declined against a basket of major currencies, while gold zipped higher to a one-week high of nearly $1,320 an ounce.
Analysts warned that the deal merely delayed the need for government to make hard decisions, such as the Federal Reserve scaling back its stimulus package of bond-buying.
"The good news for markets is that it seems highly unlikely that the Federal Reserve will risk tapering in December or January assuming the next budget negotiations go close to the wire again… it could be March at the earliest for tapering, which would continue to keep assets on the expensive side for the coming few months at least," said Deutsche Bank's Jim Reid in a note.
Earlier, Dallas Fed President Richard Fisher said the central bank cannot effectively combat high unemployment unless Congress and President Obama "get their act together" and fix the nation's fiscal problems.
"Kicking the can down the road for a few months will not solve the pathology of fiscal misfeasance that undermines our economy and threatens our future," Fisher said.
Among earnings, newly-minted Dow component Goldman Sachs posted earnings that topped expectations, but revenue fell well below estimates, mainly due to weak bond-trading volumes, sending shares lower. Morgan Stanley, the last major financial company, is slated to post quarterly results Friday morning.
UnitedHealth also fell after the health insurance company posted earnings that matched Wall Street estimates, but revenue fell short of expectations.
Meanwhile, fellow Dow component Verizon climbed after the telecom company reported better-than-expected quarterly results, adding it expects wireless customer growth to improve sequentially in the fourth quarter.
On the economic front, weekly jobless claims fell 15,000 to a seasonally adjusted 358,000, according to the Labor Department. California continued to deal with a backlog related to computer problems. Economists polled by Reuters had expected first-time applications to rise to 335,000 last week.
Meanwhile, factory activity in the mid-Atlantic region slowed slightly in October, but firms remained optimistic about the future, according to the Philadelphia Federal Reserve Bank.