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Dow Closes 527 Points Higher on Economic Recovery Signs

Dow Closes 527 Points Higher on Economic Recovery Signs

Tuesday, 16 June 2020 04:06 PM

Wall Street advanced on Tuesday as the prospect of additional stimulus and a record jump in retail sales suggested the U.S. economy could bounce back sooner than expected, five months into its pandemic-inflicted recession.

All three major U.S. stock indexes posted their third consecutive daily gains.

The Dow and the S&P remain about 11% and 8% below their respective record closing highs reached in February, while the tech-heavy Nasdaq hovers about 1% below its all-time closing high reached on June 10.

Data released by the Commerce Department showed retail sales jumped by a record 17.7% in May, blowing past the 8% increase analysts expected.

Investor risk appetite was given a further boost by the Trump administration's anticipated $1 trillion dollar infrastructure package aimed at jump-starting the economy.

"The retail sales numbers is the story that's driving markets higher," said Ryan Detrick, senior market strategist at LPL Financial in Charlotte, North Carolina. "But the smell of stimulus in the air is adding to today's gains for sure."

Amid a resurgence of new COVID-19 cases in China and the United States, along with unabated progression of the pandemic in Latin America and elsewhere, a UK-led drug trial showed low doses of generic steroid drug dexamethasone reduced COVID-19 death rates among the most severe cases.

"We got potentially more positive news in the fight against COVID-19," Detrick added. "But while COVID is in most peoples' minds, in the stock market's view it is all about reopening and the strong data suggest the recovery is happening and faster than most expected."

At the beginning of his two-day testimony before Congress, Federal Reserve Chairman Jerome Powell said, "Until the public is confident that the disease is contained, a full recovery is unlikely."

The Dow Jones Industrial Average rose 526.82 points, or 2.04%, to 26,289.98, the S&P 500 gained 58.15 points, or 1.90%, to 3,124.74 and the Nasdaq Composite added 169.84 points, or 1.75%, to 9,895.87.

All 11 major sectors of the S&P 500 ended the session well in the black, with energy and healthcare leading the charge.

The upbeat retail sales data helped push S&P 500's Retail index 2.3% higher, led by Nordstrom Inc and Kohls Corp, which surged by 12.9% and 9.0%, respectively.

Much stronger than expected homebuilder sentiment data helped home improvement retailer Home Depot Inc provide among the biggest boosts to the blue-chip Dow. Its shares rose 3.6%.

Shares of Eli Lilly and Co surged 15.7% after announcing its breast cancer therapy's success in a late-stage study.

Oracle Corp was up 2.5% after Wells Fargo hiked its price target on the company's shares ahead of its earnings release expected after the bell.

Streaming platform Roku Inc rose 12.4% in heavy volume, with no clear impetus, and the company declined to comment.

Advancing issues outnumbered declining ones on the NYSE by a 4.42-to-1 ratio; on Nasdaq, a 3.05-to-1 ratio favored advancers.

The S&P 500 posted seven new 52-week highs and no new lows; the Nasdaq Composite recorded 97 new highs and seven new lows.

Volume on U.S. exchanges was 12.87 billion shares, compared with the 12.95 billion average over the last 20 trading days.

GLOBAL MARKETS

A record rebound in U.S. retail sales, fresh support from the Federal Reserve and Bank of Japan, and upbeat trial results for a COVID-19 treatment boosted risk appetite on Tuesday, driving global equity markets higher and strengthening the dollar.

U.S. Treasury yields rose, as did demand for lower-rated southern European debt, on the upbeat sentiment, even as a fresh coronavirus outbreak in China spurred gold higher in see-saw trade.

A near 5% jump overnight by Japan's Nikkei gave Asia its best day since late March, while the major European bourses rallied around 3%. There were no declining stocks on Frankfurt's 30-component DAX, only one on the CAC40 in Paris and three out of 109 on the FTSE 100 in London. Wall Street surged, though not as much.

U.S. retail sales jumped the most on record in May, offering new evidence the recession triggered by the coronavirus pandemic might be drawing to an end, while trial results showed dexamethasone reduced death rates by about one-third among the most severely ill COVID-19 patients.

A report overnight said the Trump administration was preparing a nearly $1 trillion infrastructure proposal in another stimulus boost, after the Federal Reserve on Monday said it would start buying corporate bonds to inject liquidity.

"It looks like we bounced back nicely in May for retail sales, which is good news. The drug results are very good news and then the spending package is good news," said Patrick Leary, chief market strategist at debt underwriter Incapital.

"All this stuff is bullish for stocks, bullish for corporate bonds," Leary said. "Congress has the ability to support the economy through their spending powers, the Fed is doing what it can through its lending powers."

Fed Chair Jerome Powell told U.S. lawmakers as he began the first of two days of testimony that a full U.S. economic recovery will not occur until the American people are sure that the coronavirus epidemic has been brought under control.

"The medical news trumps the economic news," Leary said. "No one's worried about the underlying issues in the economy - they're worried about COIVID-19."

MSCI's gauge of stocks across the globe gained 1.98%, while the pan-regional FTSEurofirst 300 index closed up 2.90% and emerging market stocks rose 2.28%.

News elsewhere contributed to the bullish sentiment.

Germany's monthly ZEW investor sentiment survey showed investors are confident that Europe's largest economy will be over the worst of the coronavirus impact by the end of the European summer.

The dollar was mostly stronger, with the euro was down 0.57% to $1.1258 and the Japanese yen was up 0.04% at 107.28.

Britain's pound rose on a mix of better-than-feared unemployment numbers and friendlier Brexit talks.

The Bank of Japan increased its lending packages for cash-strapped firms to $1 trillion from about $700 billion, but also kept rates steady, sticking to its view that the Japanese economy will gradually recover from the pandemic.

Benchmark U.S. 10-year Treasury notes rose 4.9 basis points to yield 0.7528%.

German, French, Dutch and other core yields also rose. Riskier Italian yields fell to their lowest since the end of March and the iTraxx European crossover index, which reflects the cost of insuring against junk-rated corporate bond defaults, fell to its lowest in six days.

"In the absence of a further surge in new (coronavirus) infections in China or the U.S., the market hopes about monetary and fiscal tailwinds alongside improving sentiment indicators should prevail," Commerzbank strategists wrote.

Oil prices rose as equity markets surged and the International Energy Agency increased its oil demand forecast for 2020. But gains were capped by worries about a second wave of coronavirus cases.

Brent crude futures ended the session up $1.24, or 3.1%, at $40.96 a barrel while U.S. West Texas Intermediate crude (WTI) rose $1.26, or 3.4% to settle at $38.38 a barrel. up 2.22%

© 2020 Thomson/Reuters. All rights reserved.


   
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Wall Street advanced on Tuesday as the prospect of additional stimulus and a record jump in retail sales suggested the U.S. economy could bounce back sooner than expected, five months into its pandemic-inflicted recession.
wall, street, stock, market, dow
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2020-06-16
Tuesday, 16 June 2020 04:06 PM
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