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Stocks pushed higher on Wednesday, swaying Wall Street back to where it was just a week after setting its all-time high earlier this year, as optimism builds that the economy can climb relatively quickly out of its current hole.
For its fourth straight gain, the S&P 500 rose 1.4 per cent as lockdowns loosen around the world and raise hopes for economic recovery to come. Treasury yields have strengthened in a sign of increased optimism after reports indicated that although the US economy remains pummelling, it might not be as grim as economists had expected.
The S&P 500 has risen 42 points to 3,122, the latest upward step since late March in its almost 40 percent surge. The index is back above where it was on 26 February, a week after its record was set.
The Dow Jones Industrial Average increased by 2% to 26,269, and the Nasdaq composite increased by 0.8% to 9,682.
A survey conducted by payroll processor ADP said last month private employers cut nearly 2.8 million jobs, but that was far milder than the 9.3 million that economists had told investors to expect. That raises optimism that the U.S. government’s more comprehensive job report on Friday may not be as bad as feared, either. Economists say it could show a loss of 8 million jobs, which would decelerate from the loss of 20.5 million jobs in April.
Other reports showed an economy that remains in bad shape, but not as dreadful as economists had predicted. One report said the nation’s services industries were contracting less than expected by economists, and at a more modest rate than in April. Another survey said factory orders dropped 13 per cent in April, but not as much as the economists expected 14.8 per cent.
Companies that would benefit most from a growing economy led the market on Wednesday, continuing a recent trend as hopes are rising that the economy and life in general can return to normal as business-shutdown orders lift.
The S&P 500’s financial stocks jumped 3.8 per cent for one of the 11 sectors that make up the index’s biggest gains. JPMorgan Chase grew 5.4% and Wells Fargo added 5.2%. They recovered more of the losses that had been sustained earlier this year due to concerns that the recession would mean waves of loan defaults.
The four straight gains for the S&P 500 overall mark its longest winning streak since early February, before the market sell off by nearly 34 per cent on concerns that the coronavirus outbreak will send the economy into its sharpest recession in decades.
Since late March stocks have soared, initially on relief after the Federal Reserve and Congress pledged large quantities of economic help. More recently, the driving force has been hope that development will resume as states around the country and nations around the world loosen restrictions on undertakings aimed at slowing the outbreak spread.
Within 7.8 per cent of its record the S&P 500 has climbed back.
Widespread protests around the country after George Floyd ‘s murder haven’t dented the rally, at least so far. One concern is that by bringing together so many people, the protests could also lead to more coronavirus infections.
Many professional investors have warned that the rally on the stock market may have been too much, too soon. The recovery for the economy is likely to be much slower than the stock market ‘s sharp turnaround just undergone, which may set investors up for disappointment.
Special concern is that stock prices have risen much faster than expectations for future corporate profits and other financial health measures, which is pushing up what Wall Street calls stock “evaluations.”
While early data suggests people want to get back to restaurants and shops, recovery may be slower than expected, said Megan Horneman, Verdence Capitol Advisors’ director of portfolio strategy.
“This is a combination of some better economic indicators with the amount of money pumped into the economy by the Fed,” she said of the rally on the market. “Yet chasing some of that momentum is dangerous when you’re dealing with heightened valuations.”