U.S. Stocks Rally As Data Adds To Optimism About Quick Recovery

Stocks moved sharply higher over the course of the trading session on Wednesday, extending the upward trend seen in recent sessions. The rally lifted the Dow and the S&P 500 three-month closing highs, while the tech-heavy Nasdaq continued to close in on the record highs set in February.

The major averages pulled back off their highs going into the close but remained firmly positive. The Dow surged up 527.24 points or 2.1 percent to 26,269.89, the Nasdaq advanced 74.54 points or 0.8 percent to 9,682.91 and the S&P 500 jumped 42.05 points or 1.4 percent to 3,122.87.

The continued strength on Wall Street came as new economic data added to investor optimism about a quick recovery, including a report from payroll processor ADP showing the pace of private sector job losses slowed by much more than anticipated in the month of May.

ADP said private sector employment slumped by 2.76 million jobs in May after plummeting by a revised 19.557 million jobs in April.

Economists had expected employment to plunge by about 9.0 million jobs compared to 20.236 million job nosedive originally reported for the previous month.

“While the labor market is still reeling from the effects of the pandemic, job loss likely peaked in April, as many states have begun a phased reopening of businesses,” said Ahu Yildirmaz, co-head of the ADP Research Institute.

Mark Zandi, chief economist at Moody’s Analytics, which compiles the report with ADP, declared the “Covid-19 recession is over” following the release of the data.

A separate report from the Institute for Supply Management also showed the pace of contraction in the service sector slowed by even more than economists had been expecting.

The ISM said its non-manufacturing index rebounded to 45.4 in May after plunging to an eleven-year low of 41.8 in April.

A reading below 50 still indicates a contraction in service sector activity, but the index came in above economist estimates for a reading of 44.0.

The U.S. data came after survey results from IHS Markit showed China’s service sector expanded for the first time in four months in May amid an easing of measures implemented to curb the spread of the coronavirus.

Sector News

Banking stocks turned in some of the market’s best performances amid the optimism about an economic recovery, with the KBW Bank Index spiking by 5.2 percent. The index ended the session at its best closing level in nearly three months.

Economic optimism also contributed to a rally by steel stocks, driving the NYSE Arca Steel Index up by 4 percent to a three-month closing high.

Substantial strength also emerged among transportation stocks, as reflected by the 3.4 percent jump by the Dow Jones Transportation Average.

Boeing (BA) posted a standout gain after two 737 Max customers deferred deliveries rather than canceling their orders for the aerospace’s giant troubled plane.

Brokerage, oil service, housing and commercial real estate stocks also saw significant strength, moving higher along with most of the other major sectors.

Meanwhile, gold stocks bucked the uptrend, with the NYSE Arca Gold Bugs Index plunging by 3.6 percent as the price of gold for August delivery tumbled $29.20 to $1,704.80 an ounce.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Wednesday. Japan’s Nikkei 225 Index surged up by 1.3 percent, while Hong Kong’s Hang Seng Index jumped by 1.4 percent.

The major European markets also showed strong moves to the upside on the day. While the German DAX Index spiked by 3.9 percent, the French CAC 40 Index soared by 3.4 percent and the U.K.’s FTSE 100 Index shot up by 2.6 percent.

In the bond market, treasuries moved sharply lower as economic optimism reduced the appeal of safe havens like bonds. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 8.1 basis points to a nearly two-month closing high of 0.761 percent.

Looking Ahead

Reports on weekly jobless claims and the U.S. trade deficit may attract attention on Thursday, although trading activity may be somewhat subdued ahead of the release of the Labor Department’s monthly jobs report on Friday.

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