Dow Industrials Climb as Optimism Builds -- Update
May 27 2020 - 4:34PM
Dow Jones News
By Anna Isaac, Caitlin McCabe and Frances Yoon
The Dow Jones Industrial Average climbed Wednesday on optimism
that economic activity is gathering steam and authorities may offer
more stimulus to bolster the recovery.
The blue-chip index was up 547 points, or 2.2%, as of the 4 p.m.
close of trading in New York setting it on track to close above the
25000 mark for the first time since early March. The index was
powered by gains in American Express, Goldman Sachs and JPMorgan
Chase, all of which climbed more than 5%.
Economically sensitive cyclical stocks, including those in the
financials and industrials sectors, have been staging a comeback
over the past week, erasing some of the punishing losses they
suffered for much of the coronavirus pandemic.
Optimism has been building in recent days that the White House
and Congress are considering more measures to blunt the impact of
historic levels of unemployment on the economy. The Trump
administration is examining proposals to provide cash incentives to
encourage unemployed Americans to return to work, a top economic
adviser said in an interview on Fox News.
Stocks were also buoyed by signs that consumers are beginning to
venture out into communities and spend again. Restaurant bookings
and spending on hotels and airlines appear to be picking up. The
Conference Board's consumer confidence index also stabilized in
May.
As investors rotated back into cyclical shares, the long-running
rally in big tech stocks has paused. Netflix dropped early
Wednesday before rising 1.2%, while Amazon fell 0.5%.
The S&P 500 was up 1.5% late Wednesday. The tech-heavy
Nasdaq Composite index was up about 0.8%.
Netflix and Amazon, along with Apple, Google parent Alphabet,
Facebook and Microsoft together account for almost 20% of the value
of the S&P 500, giving them significant sway over the direction
of the benchmark index.
All six stocks have posted big gains for the year, while the
S&P is still off more than 7%, despite a furious rally since
late March.
Biotechnology companies also declined Wednesday, despite
promising signs for a coronavirus vaccine last week. Moderna, which
reported encouraging early results from its vaccine candidate last
week, lost 11%. Inovio Pharmaceuticals fell 9.6%.
The economic pain from the coronavirus pandemic has still been
deep, with more than 38 million Americans seeking unemployment
benefits since mid-March. It remains unclear how long it will take
people to get back to work, or whether consumer behavior will fully
return to pre-virus levels.
"Just because we're allowed to re-open and allowed to go to
restaurants again and the bans are lifted, it doesn't necessarily
mean that we'll have an uptick in consumer spending and
consumption," said Nancy Davis, chief investment officer of
Quadratic Capital Management and portfolio manager of the IVOL
exchange-traded fund. "It's like an engine -- the car has
completely stalled and we don't know if we're going to be able to
go a block or a mile."
Later Wednesday, investors will be watching for the Federal
Reserve's beige book report on economic conditions. Home builder
Toll Brothers will also report earnings, giving investors another
glimpse of the virus' impact on real estate.
Outside the U.S., the pan-continental Stoxx Europe 600 edged up
0.2% after the European Union set out a $2 trillion coronavirus
response plan. The proposal includes a EUR750 billion ($824
billion) recovery plan and EUR1.1 trillion budget over the next
seven years.
Among European stocks, car makers were some of the biggest
gainers. French President Emmanuel Macron on Tuesday evening said
his government planned to spend billions of euros to prop up the
country's auto industry amid a collapse in car purchases caused by
the coronavirus crisis. Renault rose over 17% in Paris, while
Peugeot climbed 4.9%.
"It's the biggest automotive intervention in history," said
Demian Flowers, head of automotive research at Commerzbank. But the
impact on stocks could be short-lived, based on the experience of
2009, Mr. Flowers said. Incentive programs for consumers can be
temporarily effective, bringing forward purchases rather than
building sustained demand.
The yield on the benchmark 10-year U.S. Treasury fell to 0.668%
from 0.697% Tuesday. Yields rise when bond prices fall.
Meanwhile, Brent crude, the global benchmark for oil, slipped
2.2% to $35.94. Russian government officials have signaled that the
country may hold off on committing to any extended production cuts
ahead of a June meeting among major oil exporters, strategists at
ING wrote in a note to clients.
In Asia, Japan's Nikkei 225 gained 0.7%. China's Shanghai
Composite drifted 0.3% lower. The Hang Seng slipped 0.4% as the
prospect of renewed unrest in Hong Kong added to growth
concerns.
Write to Anna Isaac at anna.isaac@wsj.com, Caitlin McCabe at
caitlin.mccabe@wsj.com and Frances Yoon at frances.yoon@wsj.com
(END) Dow Jones Newswires
May 27, 2020 16:19 ET (20:19 GMT)
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