The Standard & Poor’s 500 index rose 36.16 points, or 2.2 percent, to 1,692.56 and the Nasdaq composite rose 82.97 points, or 2.3 percent, to 3,760.75.
Thursday’s gains were extraordinarily broad. Of the 500 stocks in the S&P 500 index, only 11 fell. Banks and industrial stocks rose the most.
A potential compromise between the two political parties could not come soon enough. Treasury Secretary Jack Lew has said the government will hit its borrowing limit on Oct. 17. That would leave the U.S. with enough cash to last just a week or two before a default became a real risk.
A short-term extension of the debt limit is “the right approach,” said Jack Ablin, who manages $66 billion as chief investment officer at BMO Private Bank.
“It allows politicians to turn down the heat a bit while still keeping the broader issues on the front burner,” Ablin said.
In another bullish signal, small-company stocks rose even more than the rest of the market. Those stocks tend to be riskier than large, well-established companies but can also offer investors greater rewards. A sharp increase in small-company stocks means investors are more comfortable taking on risk. The Russell 2000 index jumped 26.04 points, or 2.5 percent, to 1,069.50. It is less than 20 points from an all-time high reached on Oct. 1.
There were hopeful signs in the market for short-term U.S. government debt. The yield on the one-month Treasury bill eased to 0.21 percent from 0.27 late Wednesday.
The yield had spiked from near zero at the beginning of the month to as high as 0.35 percent Tuesday as investors dumped the bills out of concern that the government might not be able to pay them back when they’re due. Investors demand higher yields when they perceive debt as being risky.
One major investor made a move to cut its exposure to short-term U.S. government debt. Fidelity Investments, the nation’s largest money market fund manager, said Wednesday it had sold all of its short-term U.S. government debt.
In other government bond trading, the yield on the 10-year Treasury note edged up to 2.68 percent, from 2.67 percent late Wednesday.
Still, the yield on the longer-term note has fallen in the past month. The move suggests that investors see any potential default as a short-term phenomenon and are predicting that economic growth will remain subdued in the long term.