Wall Street rallies on hopes of economic recovery; S&P up over 1%

Topics Wall Street | S&P | Dow Jones

Treasury yields also rose in a signal of improved optimism
Wall Street is rallying in early trading Friday, putting the S&P 500 on pace to close out a winning week after encouraging reports raised hopes for a coming economic recovery.

The S&P 500 was up 1.1 per cent , following up on similar gains in European markets and more modest ones across Asia.

Treasury yields also rose in a signal of improved optimism.

The gains were widepsread, with some 90 per cent  of stocks in the S&P 500 higher, led by energy companies. The Dow Jones Industrial Average was up 272 points, or 1.1 per cent , at 26,346, as of 9:51 am.

Eastern time, and the Nasdaq composite was up 1.1 per cent .

The S&P 500 is on pace to finish the week with a 3.5 per cent  gain, which would be its fourth in the last five weeks. It would mark a revival following last week's 4.8 per cent  drop, its worst in nearly three months, when worries flared that rising coronavirus infection levels could imperil early improvements seen in the economy.

But a report on Tuesday showed that US shoppers spent much more last month at stores and online retailers than economists expected. That bolstered hopes that the economy can pull out of its recession relatively quickly.

Economists at Bank of America now expect the US economy to shrink 5.7 per cent  this year, a severe contraction but not as bad as their earlier forecast for an 8.1 per cent  plunge.

Economic data continue to point to a faster and stronger initial recovery, they wrote in a BofA Global Research report. Some of that is due to economic activity being pulled forward from what they had expected to occur next year, ahead of a long road to full recovery. They lowered their forecast for growth in 2021 to 3.4 per cent from 4 per cent.

The Federal Reserve also reminded markets this week how much it's doing to prop up the economy.

The central bank said early in the week that it will buy individual corporate bonds as part of its previously announced plan to support lending markets for big employers.

Later in the week, the Fed's chair said it plans to continue to keep interest rates pinned at nearly zero to help cushion against the recession.

It was huge efforts by the Fed, along with spending by Congress, that helped the stock market turn around from its nearly 34 per cent  plunge in March. More recently, it's been hopes that the worst of the recession may have already passed that have pushed the market higher.

Stocks whose profits are most closely tied to the strength of the economy have often been leading the way, and they did so again on Friday.

Energy companies in the S&P 500 rose 2.2 per cent  for the biggest gain among the 11 sectors that make up the index. Marathon Petroleum rose 5.1 per cent , Devon Energy gained 5 per cent  and Halliburton rose 4 per cent .

Still, many analysts say volatility is likely the only certainty for the market in upcoming months. It may take years for the economy to fully recover, but it took just a few months for the stock market to rally back to within 8 per cent  of its record.

In Europe, the German DAX returned 1.1 per cent , and France's CAC 40 rose 1.6 per cent . The FTSE 100 in London added 1.4 per cent .

In Asia, Japan's Nikkei 225 rose 0.6 per cent , the Hang Seng in Hong Kong gained 0.7 per cent  and the Kospi in South Korea rose 0.4 per cent .

The yield on the 10-year Treasury note rose to 0.73 per cent  from 0.69 per cent  late Thursday. It tends to move with investors' expectations for the economy and inflation.

A barrel of US crude oil for delivery in July rose 3.3 per cent  to $40.14. Brent crude, the international standard, gained 2.3 per cent  to $42.45 per barrel.

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