Battered energy and airline shares soar
Major U.S. stock benchmarks finished Monday above, or near, their prior all-time closing highs, as lockdown measures eased in New York City and elsewhere, sparking optimism about the potential for economy recovery.
How did benchmarks fare?
The Dow Jones Industrial Average US:DJIA climbed 461.46 points, or 1.7%, to end at 27,572.44, its sixth straight gain. The S&P 500 US:SPX rose 38.46 points, or 1.2%, finishing at 3,232.39. The tech-heavy Nasdaq Composite Index US:COMP gained 110.66 points, or 1.1%, ending at 9,924.74, a new all-time closing record.
The Dow on Monday finished 6.7% off its closing high in mid-February, while the S&P 500 ended only 4.5% shy of its highest close, according to Dow Jones Market Data.
What drove the market?
The Federal Reserve has been wildly successful in terms of keeping credit flowing during the pandemic, with major U.S. equity and debt benchmarks already recouping significant lost ground since the COVID-19 pandemic forced the nation into lockdown.
The stock rally included not only high-flying technology companies that provided sought-after services during recent shutdowns, but also companies battered by low oil prices and the near halt in travel.
“I’m finding it exciting,” said Diane Jaffee, a senior portfolio manager at TCW, in a telephone interview with MarketWatch, adding that the breath of the recovery and recent sector rotation looks like it’s “not for a short term, but longer term.”
Investors also will keep an eye on what the central bank does next, with the Fed set to release its updated policy statement on Wednesday and its first set of economic projections since December.
Investors aren’t expecting the Fed to pull in its backstops or to dial back rates, which currently stand at a range between 0% and 0.25%. But they will look for more clues from policy makers after Friday’s jobs report produced a stunning 2.5 million increase in payrolls in May, when economists had expected as many as 9 million jobs lost in the month, amid coronavirus-related closures.
“Some policy makers will look at the results of recent progress and conclude that no more fiscal stimulus is needed,” said Kristina Hooper, Invesco’s chief global market strategist, in emailed commentary on Monday, while pointing to a classification error that made the unemployment rate look better than it actually was.
“To the contrary — I believe that recent economic data proves that fiscal stimulus is needed,” Hooper said.
Friday data showed that the U.S. May unemployment rate fell to 13.3%from 14.7%. Economists polled by MarketWatch had predicted the loss of 7.25 million jobs and a May unemployment rate of 19%.
In other economic data, the National Bureau of Economic Research, the ultimate arbiter of the state of the U.S. economy, said the domestic economy officially entered recession in February, ending its longest period of expansion on record.
Despite civil unrest and rising Sino-American trade tensions, markets have been kept afloat and even made significant gains on the back of trillions of dollars in support from the U.S. government and the Fed, whose balance sheet has ballooned to $7.21 trillion from around $4 trillion in March.
Investors also have been heartened by efforts to reopen the U.S. economy in the aftermath of pandemic-related closures. Reopening plans are in various stages in all 50 U.S. states. New York City, one of the regions hardest hit by coronavirus, launched the first phase of its reopening on Monday, including the restart of construction and limited retail operations.
“From the market’s perspective, the economic impact of COVID is basically over. We still may see spikes in cases, but it will be difficult politically to shut down economies again,” said Bill Callahan, an investment strategist at Schroders, in an interview.
He also pointed out “the rally broadening out beyond the FAANG stocks,” as a positive signal for equities.
Shares of oil and airline companies, industries that were both ravaged by lockdown measures instituted to stem the pandemic, outperformed the broader market on Monday. The U.S. Global Jets US:JETS, a fund that tracks commercial airline stocks, gained 9.2%.
Still, Arizona, Arkansas, California, Florida, North Carolina, Texas, Utah and other states are reporting an increase in the number of COVID-19 infections after having lifted some restrictions, the Wall Street Journal reported, even as the overall case tally is sliding in the U.S., per data compiled by Johns Hopkins University.
As of early Monday, there were more than 7 million confirmed cases of the deadly infection globally, with 1.9 million cases in the U.S., according to the data.
Which stocks were in focus?
- Hertz Global Holdings Inc. US:HTZ shares soared 115.2%, more than enough to erase all the losses suffered since the car rental company declared bankruptcy, amid increasing signs that travel demand is steadily improving.
- Shares of Roku Inc. US:ROKU gained 8.2% after the company announced a new ad-targeting program meant to help marketers of consumer-packaged goods conduct “more precise and measurable” streaming TV advertising.
- PG&E Corp. US:PCG Shares of rose 0.4%, after the San Francisco-based utility announced an equity investment of a total of $3.25 billion by investors including Appaloosa, Third Point LLC, Fidelity Management & Research Co. LLC and Zimmer Partners at a discount to current prices.
- Shares of Gilead Sciences Inc. US:GILD rose 0.3%, after Bloomberg reported over the weekend that U.K. drugmaker AstraZeneca PLC US:AZN made a preliminary approach regarding a potential merger, although the report said the companies weren’t in formal talks and Gilead wasn’t currently interested in selling or merging.
- Shares of oil companies were bolstered as U.S. crude prices neared $40 a barrel. Marathon Oil Corp. US:MAR rose 15.2%, along with a 12.9% gain in Noble Energy Inc. US:NBL and a stunning 181.2% gain for Chesapeake Energy Corporation US:CHK.
- California Resources Corp. US:CRC shares rose 34.3%, despite a Wall Street Journal report saying that the company could file for bankruptcy as soon as next week, after the oil driller disclosed Monday that it failed to make certain interest payments due on May 29.
- Shares of Dow component Boeing Co. US:BA surged 12.2% after analysts at Seaport said the worst had been priced in for the aircraft manufacturer. The most beaten-down industries have rallied in recent sessions as they come back into favor again.
- Tesla US:TSLA stock closed above $949 on Monday, after hitting an intraday high of $934.88, its highest intraday since Feb. 19, when it hit $944.78.
- Michaels Cos. US:MIK stock rallied 58.6% Monday after the arts-and-crafts retailer was upgraded at JPMorgan to overweight from neutral and raised its price target to $13 from $7.
How did other assets trade?
Oil prices fell US:CLN20 Monday as investors worried about the prospect of increased production from some countries, even after OPEC+ agreed on Saturday to extend a pact to ease global output. West Texas Intermediate Crude dropped $1.36, or 3.4%, ending at $38.19 a barrel on the New York Mercantile Exchange.
In precious metals, August gold US:GCM20 on Comex climbed $22.10, or 1.3%, to settle at $1,705.10 an ounce, after finishing Friday trade at its lowest level since April 3.
The 10-year Treasury note yield BX:TMUBMUSD10Y fell 2 basis points to 0.883%, snapping a five-day march higher, following Friday’s surprising jobs report. Bond prices move in the opposite direction of yields.
The greenback edged 0.3% against its major rivals, as gauged by the ICE U.S. Dollar index US:DXY.
In global equities, the Stoxx Europe 600 index XX:SXXP closed down 0.3% and the FTSE 100 index UK:UKX fell 0.2%.
In Asia, Japan’s Nikkei JP:NIK closed 1.4% higher, the China CSI 300 XX:000300 finished 0.5% higher and Hong Kong’s Hang Seng Index HK:HSI finished slightly higher. South Korea’s Kospi index KR:180721 gained 0.1%.