NEW YORK (AP) — Stocks are rallying Monday as governments worldwide prepare to gradually lift restrictions that are meant to slow the coronavirus outbreak but are also erasing businesses and jobs.
Banks, retail stores, travel companies and other businesses that stand to gain the most from people re-emerging from their homes jumped to the biggest gains. They helped drive the S&P 500 up 1.5% in afternoon trading, at the start of a week chockablock with market-moving events.
Several of the world’s largest central banks are meeting this week, including the Bank of Japan, which announced its latest stimulus measures to prop up markets. A slew of the biggest U.S. companies are also scheduled to report how much profit they made in the first three months of 2020, including the handful that most heavily dictates how the market moves. More importantly, CEOs may also talk about how they see future conditions shaking out.
With central banks and governments promising overwhelming amounts of aid for markets and economies, some investors say a repeat of the 2008 financial crisis is unlikely. That has them looking beyond the economic devastation currently sweeping the world to the potential return of growth as the outbreak levels off in some areas.
“Investors have written off 2020 as a shocker and are looking more intently into the landscape in 2021,” Chris Weston of Pepperstone wrote in a report.
Treasury yields pushed higher in an indication of less pessimism in the market, but crude tanked again in the latest extreme swing that’s dominated oil markets in recent weeks.
The Dow Jones Industrial Average was up 384 points, or 1.6%, at 24,159, as of 2 p.m. Eastern time, and the Nasdaq was up 1.2%.
The gains were widespread and accelerated though the day. At the head of the pack were some of the stocks that were hardest and earliest hit by the coronavirus pandemic.
Banks and other financial companies rose 3.6% for the biggest gain among the 11 sectors that make up the S&P 500. They had earlier tumbled on worries about waves of households and businesses defaulting on their loans.
The reopening of businesses in some states and a slowdown in hospitalizations in the hardest-hit state of New York helped revive them. So did a rise in Treasury yields, which can help them make bigger profits from making loans. JPMorgan Chase rose 5.4%, and Bank of America gained 4.5%. Financial stocks, though, remain down nearly 27% for the year.
It’s a big leap of faith to expect that earnings are going to go back to pre-2020 levels.
–Marc Chaikin, Chaikin Analytics
Real-estate investment trusts that own shopping malls also recovered a portion of their earlier losses as investors looked toward a future where people actually visit stores again. Even travel-related stocks, which fell before the rest of the market on worries about the coronavirus outbreak, were strong.
Stocks of smaller companies jumped more than the rest of the market. The Russell 2000 jumped 4.5%. It’s still down more than twice as much as the S&P 500 this year. With smaller financial buffers, small-cap stocks often get punished more when investors are anticipating downturns, but they can also rise faster than their bigger rivals during rebounds.
The market’s big gains, though, are built more on hope that conditions will continue to improve than on anything certain. Some investors are worried that reopenings of businesses could actually lead to a second wave of infections if they’re premature, and many warn that it’s still too uncertain how long this recession will last.
“The sense I get is people are not going to be comfortable with life as usual,” said Marc Chaikin, founder of Chaikin Analytics. “It’s a big leap of faith to expect that earnings are going to go back to pre-2020 levels.”
“The biggest risk to the stock market is if the reopenings don’t go well,” he said. “If that were to happen, that would deflate the investment psyche.”
And it’s not like stocks are screamingly cheap, which would lessen the risk. Companies in the S&P 500 are trading at higher levels relative to their expected earnings over the upcoming 12 months than they have historically, and even than they were when stocks peaked two months ago, according to Bruce Bittles, chief investment strategist at Baird.
“Our economy will recover but expectations may have gotten ahead of tangible data,” he wrote in a report.
Asian markets rose after Japan’s central bank scrapped its ceiling on how much government debt it will buy to support the economy. Japan’s Nikkei 225 rose 2.7%, while South Korea’s Kospi added 1.8% and the Hang Seng in Hong Kong added 1.9%.
In Europe, Italy laid out a timetable for easing restrictions, and other countries are set to detail their plans soon. The German DAX climbed 3.1%, while the French CAC 40 rose 2.5% and the FTSE 100 in London added 1.6%.
In the U.S., roughly 150 companies in the S&P 500 are scheduled to report earnings this week. That includes the Big Five of Amazon, Apple, Facebook, Microsoft and Google’s parent, Alphabet, which together make up about a fifth of the index.
The yield on the 10-year Treasury rose to 0.65% from 0.59% late Friday. It’s still well below the 1.90% level it was near at the start of the year, though. Yields tend to drop when investors are downgrading their expectations for the economy and inflation.
In energy markets, the cost for a barrel of U.S. oil to be delivered in June fell $4.16, or 24.6%, to settle at $12.78 a barrel. Prices have been swinging wildly as demand for energy collapses and storage tanks come close to topping out. Brent crude, the international standard, fell $1.45, or 6.8%, $19.99 a barrel.
AP Business Writer Joe McDonald contributed.