The Dow Jones industrial average rose more than 500 points to a record high after bond yields fell and a new stimulus package prompted investors to buy up stocks that will benefit from a faster recovery from the pandemic.
The S&P 500 was up 1.1%, led by energy and finance. The Nasdaq Composite rose 0.5% after gaining 1.6% earlier in the day. The tech-heavy benchmark rallied 3.7% in the previous session for its best day since November.
House Democrats passed a $ 1.9 trillion coronavirus relief bill on Wednesday and sent it to President Joe Biden, which is expected to sign on Friday. Biden said checks should reach up to $ 1,400 this month.
Cyclical stocks, or stocks most sensitive to an economic recovery, drove the gains and continued the trend seen in recent weeks. The S&P 500 energy sector gained 1.9% on Wednesday and grew more than 38% in 2021. Industry, materials and finance increased by more than 1%.
“With added fiscal stimulus and the fact that the Fed remains accommodative, there is a perfect combination,” said Jimmy Chang, chief investment officer at Rockefeller Global Family Office. “We expect value to outperform growth for the next few quarters and higher returns will make it harder to justify valuations.”
Wednesday’s tame inflation data eased concerns about rising prices, which have driven yields higher and unsettled equity investors. The yield on 10-year government bonds has barely changed at 1.51%.
The Department of Labor said consumer prices rose 0.4% in February, in line with expectations of economists polled by Dow Jones. The consumer price index also increased by 1.7% year-on-year, also in line with estimates.
“The biggest concern the markets had over the last month was that inflation was hotter than we estimate. The CPI lets that rest well, at least for today,” said Art Hogan of National Securities. “The return for 10 years is no longer parabolic.”
The comeback rally in high-growth tech stocks took a breather after the massive snapback in the previous session. Tesla fell 1% after rising 10% for its best day in more than a year. Cathie Wood’s active Ark Innovation Fund (ARKK) traded flat after the biggest daily gain of all time.
Higher rates have raised concerns about tech stock valuations. The tech-heavy Nasdaq had fallen into correction territory on Monday, or more than 10% from its recent high.
The expected stimulus and rate hikes have recently split the market, especially favoring stocks that are used for a recovering economy over the tech and growth stocks that led during the pandemic.
Key bond auction
Wednesday’s widespread 10-year government bond auction, valued at $ 38 billion, began with sufficient demand. The result eased concerns among traders that the country’s growing debt burden would be too high for the market, hurting demand for bonds and further increasing yields.
The 10-year return stayed a little lower after the auction. The key interest rate passed the 1.6% threshold again on Monday. Bond prices move in the opposite direction to yields.
“I think bonds are still oversold at this point,” said Kimberly Woody, portfolio manager at Globalt Investments. “We’re still in a very defined trading range on interest rates. I think we’ll see lower rates before we see higher rates.”
UBS has been more bullish on stocks for the year with incoming stimulus and pent-up consumer spending. The Wall Street company raised its year-end S&P 500 target to 4,250 from 4,100 on Tuesday, up nearly 9%.
– CNBC’s Patti Domm contributed to the coverage.
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