WDC Western Digital Corporation

By Joe Wallace and Paul Vigna 

U.S. stocks resumed a familiar pattern Thursday, with tech shares rising sharply and outpacing the rest of the market.

The Nasdaq Composite rose 1.4%, following a 1.5% gain on Wednesday. The S&P 500 was up 0.8%, after the broad stocks gauge closed out a fourth consecutive quarterly advance on Wednesday, while the Dow Jones Industrial Average was up 0.4%.

Many investors are hopeful that stocks will continue to climb in the second quarter. Their optimism is pegged to the prospect of a surge in economic growth amid widespread vaccinations, fresh spending programs from the Biden administration and earnings expectations. Still, they point to risks stemming from rising bond yields, new lockdowns in Europe and signs of excess in corners of the market.

A year ago stocks rose sharply in expectation of an economic rebound, said Shawn Snyder, a strategist at Citi U.S. Wealth Management. Now that it appears to be here, investors have "Covid jitters," he said, looking warily at inflation expectations and, ultimately, a reversal of Federal Reserve policy.

"We're exiting this Goldilocks situation [for stocks] and wondering if the porridge is too hot," he said.

Some are questioning whether this year's rotation out of technology stocks and into economically sensitive sectors like banks and energy has gone too far. Having powered the broad market higher in 2020, the rally in tech stocks slowed in the first quarter as investors bought into companies that stood to benefit from the economic rebound.

That thinking was evident Thursday morning.

"We are entering a period of time when there is a bit more risk, and for that I want to have a more balanced approach," said Lars Skovgaard Andersen, investment strategist at Danske Bank Wealth Management. Mr. Andersen thinks information-technology stocks such as Microsoft and Salesforce.com would provide a cushion if cyclical stocks lose momentum.

On the economic front, new claims for jobless benefits edged up to 719,000 last week from 658,000 the previous week, data from the Labor Department showed. Economists had expected unemployment claims -- a proxy for layoffs -- to decline. The figures are closely followed by investors seeking to gauge the pace of the economic rebound.

The Institute for Supply Management's March survey of purchasing managers at U.S. factories was better than expected, showing another solid month for new orders, output and employment. The March PMI came in at 64.7, higher than the projected 61.7.

That is another welcome sign for the economy. On Wednesday, President Biden unveiled a $2.3 trillion infrastructure plan centered on fixing roads and bridges, expanding broadband internet access and boosting funding for research and development. Semiconductor producers and others stand to benefit from President Biden's infrastructure package, Mr. Anderson said.

Shares of electric vehicle makers got a boost Thursday, with Tesla, Nikola and Materialise rising.

In corporate news, shares of Micron Technology rose 5% after The Wall Street Journal reported that the memory-chip maker was exploring a potential deal for Japan's Kioxia. Western Digital -- which the Journal also reported to be circling the Japanese semiconductor company -- gained 4.8%.

The yield on 10-year Treasury notes slipped to 1.679% from 1.749% Wednesday. Yields posted their biggest one-quarter rise since 2016 in the first three months of the year, unsettling tech stocks whose valuations had been plumped up by low interest rates.

Thursday's moves bolstered investors who think yields are unlikely to keep rising at the same pace.

"The bond market has adjusted now and is at the level appropriate for the coming inflation," said Hans Peterson, global head of asset allocation at SEB Investment Management. "Bond volatility is going down, which is part of feeling more confident in seeing the opportunity in growth stocks."

Oil prices wavered after a meeting of ministers from members of the Organization of the Petroleum Exporting Countries and its partners, led by Russia, got under way. U.S. crude rose 0.8% to $59.68. Analysts expect the cartel to keep significant output cuts in place to bolster the oil market after a recent slide in prices.

In overseas markets, the Stoxx Europe 600 rose 0.6%, led by tech and real-estate stocks. Moving in the other direction, shares of Atos slid 13% after the French IT company said its auditors had found issues that caused accounting errors at two U.S. subsidiaries.

China's Shanghai Composite Index and Japan's Nikkei 225 both rose 0.7%.

Write to Joe Wallace at Joe.Wallace@wsj.com and Paul Vigna at paul.vigna@wsj.com

(END) Dow Jones Newswires

April 01, 2021 11:47 ET (15:47 GMT)

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