By Caitlin Ostroff, Paul Vigna and Joanne Chiu
U.S. stocks rose Tuesday on optimism about economies reopening
and the potential development of a coronavirus vaccine.
The Dow Jones Industrial Average rose 670 points, or 2.7%, to
25135. The S&P 500 rose 1.9%, climbing back above 3000 for the
first time since early March and above its 200-day moving average,
a closely watched barometer of its strength. The technology-heavy
Nasdaq Composite rose 0.9%.
Investors were cheering signs of economic activity resuming
faster than expected across parts of the U.S. and elsewhere in the
world. Restaurant bookings and spending on hotels and airlines
appears to be picking up in the U.S., coinciding with a decline in
the daily number of new infections.
The U.K. has laid out plans to reopen retail stores next month,
while Italy, one of the hardest-hit countries, saw people return to
bars and restaurants over the weekend.
Closer to Wall Street, the New York Stock Exchange's famed
trading floor reopened on Tuesday -- incidentally, also the 124th
anniversary of the start of the Dow Jones Industrial Average. The
floor had only around one-quarter of its usual number of traders
and new social-distancing rules to limit the spread of Covid-19. A
mask-wearing New York Gov. Andrew Cuomo rang the opening bell.
All three major indexes have surged more than 30% from their
late March lows.
Stocks have quickly recaptured a level of euphoria usually seen
at market tops, said Peter Boockvar, chief investment officer at
Bleakley Advisory Group. That's because stock traders are looking
only at the direction of the recovery, while bonds are more
concerned with the degree of the recovery, he said.
"As long as things are reopening, the economic data don't
matter," Mr. Boockvar added.
Investors are also betting that one of at least 10 coronavirus
vaccines under development will eventually come to market, halting
the spread of the coronavirus and allowing normal business and
social activity to resume.
Novavax said Monday that it started the first human study of its
experimental vaccine. Drugmakers including Pfizer and Moderna are
also racing to develop a vaccine. Novavax shares rose 8%, while
Moderna fell 12%. Pfizer was up 0.8%.
"It looks like we have several shots on goal," said Hani Redha,
a multiasset portfolio manager at PineBridge Investments. Although
manufacturing a vaccine and disseminating it to the wider
population will take time, the number of potential candidates has
buoyed markets.
"Any kind of glimmer of hope about any trial going well or any
trial starting is going to be good," he said.
The concern among some investors is how to value stocks when
earnings have fallen so sharply and many companies have withdrawn
their future forecasts.
The recent rally has pushed the S&P 500's forward-looking
price-to-earnings ratio to 23.36, its highest level since 2002. But
corporate profits are expected to remain under pressure until next
year as sales tumble and expenses rise as companies spend to make
their workplaces safe.
"It's safe to say it's going to be a couple of years," before
earnings recover, Mr. Boockvar said.
After S&P 500 operating earnings hit $157 a share in 2019,
they are projected to fall to $111 this year and rise to $162 in
2021, according to estimates from Howard Silverblatt, the senior
index analyst at S&P Dow Jones Indices.
"If we see the upward turn in earnings, then the current levels
may be justified," Mr. Silverblatt said. "If not, the Street will
need to reprice."
On the data front, the Conference Board's May consumer
confidence index rose to 86.6 from 85.7 in April, topping
expectations. New homes sales were also stronger than expected,
rising to 623,000 in April from 619,000 in March.
In another sign investors are embracing risk, a range of assets
typically considered safe are falling sharply. Most actively traded
gold futures are down 1.7% at $1,705.80 a troy ounce, while the WSJ
Dollar Index is down 0.8% as investors favor riskier parts of the
market like commodities and emerging markets.
It is unusual for gold and the dollar to be down so much at the
same time because a weaker dollar makes gold and other
dollar-denominated assets cheaper for overseas buyers. The
synchronous drop highlights the strength of Tuesday's "risk-on"
move.
The trend is also sending Treasury yields higher as investors
retreat from ultrasafe Treasurys. The yield on 10-year Treasurys
ticked up to 0.697%, from 0.659% Friday. Bond yields in northern
European countries rose while yields fell in southern nations,
including Italy and Greece. Yields and prices move inversely.
West Texas Intermediate, the main U.S. crude gauge, advanced
1.8% to $33.86 a barrel.
Overseas, the pan-continental Stoxx Europe 600 advanced 1.1%,
led by gains in bank shares and the travel and leisure sector. Most
major Asia-Pacific equity benchmarks ended the day higher. In
Japan, where the government lifted its state of emergency Monday,
the Nikkei 225 rose 2.6%.
Australia's benchmark index rose 2.9%, while Hong Kong's Hang
Seng Index advanced 1.9%. The Shanghai Composite gained 1%.
Write to Caitlin Ostroff at caitlin.ostroff@wsj.com, Paul Vigna
at paul.vigna@wsj.com and Joanne Chiu at joanne.chiu@wsj.com
(END) Dow Jones Newswires
May 26, 2020 14:33 ET (18:33 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.