The Dow Jones Industrial Average broke out of its September slump with its biggest two-day rally in more than six months, lifted by investors’ growing confidence the economy can withstand the end of pandemic stimulus measures and troubles in Chinese property markets.
Bank stocks and shares of energy companies surged. Brent crude, the international gauge of oil prices, hit a nearly three-year high at more than $77 a barrel. Benchmark government bond yields, which tend to rise when investors expect growth and inflation, posted their biggest one-day climb since March.
Investors had expected a rebound from the downward drift that had carried the S&P 500 lower for much of the month. After a steep decline fueled by worries about the collapse of property giant China Evergrande Group that began the week, shares stabilized, then began climbing Wednesday even before the Federal Reserve signaled the economy had made enough progress for the central bank to begin reducing pandemic stimulus measures soon.
“The patient, the U.S. economy, is no longer in the emergency room and needing life support,” said Timothy Horan, chief investment officer of fixed income at Chilton Trust. “Even though the Fed is telling us they expect the growth to slow down, it is a measured slow down and not a derailment that plunges the U.S. economy into a recession.”
The blue-chip index added 506.50 points, or 1.5%, to 34764.82 in its largest one-day surge since July. The S&P 500 gained 53.34 points, or 1.2%, to end at 4448.98, while the Nasdaq Composite Index added 155.40, or 1%, to 15052.24 points. All three indexes are now higher on the week.
Among the biggest gainers in the Dow industrials: shares of Salesforce.com Inc. added $18.69, or 7.2%, to $277.86 after the California-based business software provider boosted its full-year sales forecasts and said the pandemic continues to drive spending on cloud services.
Energy shares climbed with the price of oil, rising 3.4% to lead gains among the S&P 500’s 11 sectors. Brent crude, the benchmark in international energy markets, gained $1.06 per barrel, or 1.4% to $77.25—its highest close since October 2018.
Financial shares also rose, adding 2.5%. Shares of JPMorgan Chase & Co. rose $5.27, or 3.4%, to $161.18 while American Express Co. gained $5.87, or 3.5%, to $173.36.
In the bond market, the yield on 10-year Treasury notes jumped to 1.408%. Yields move in the opposite direction to bond prices.
Easing worries about a disorderly collapse of Evergrande also helped power gains, some investors said. The heavily indebted company has issued billions of dollars of bonds to international investors, with many trading for a fraction of their face value, sparking fears its collapse could spread economic pain through the world’s second largest economy, with spillovers into global financial markets.
U.S. markets closed with no word on whether Evergrande would make $83.5 million in debt payments by a Thursday deadline. Chinese authorities are asking local governments to prepare for Evergrande to potentially fail, The Wall Street Journal reported, signaling Beijing’s reluctance to bail it out.
“There is some confidence that the government is standing by to make sure that this doesn’t become more widespread,” said Stephanie Lang, chief investment officer at Homrich Berg. “There is no clear indication that they are going to prop up Evergrande, but they will make sure that this won’t spillover more broadly.”
Hong Kong-listed shares of Evergrande jumped nearly 18%, though remained down more than 80% for the year. Hong Kong’s Hang Seng Index, which bore the brunt of the selling pressure at the start of the week, climbed 1.2% to end the day. China’s Shanghai Composite Index rose 0.4%.
Many investors remain concerned that the pandemic’s resurgence could stall the economic rebound and unravel this year’s gains, which carried the S&P 500 to 54 records.
Investors are also tracking negotiations in Washington over President Biden’s $3.5 trillion spending proposal. Companies are concerned that higher taxes, which might be used to finance the package, will hurt cash flows and their ability to return cash to shareholders. Democratic lawmakers are having trouble reaching a consensus because of sharp intraparty differences.
The spending proposal “is crucial for the market, economy and individuals,” said Jon Ekoniak, managing partner at Bordeaux Wealth Advisors. “These are just proposals and nothing is set in stone and nothing has passed but a lot of concern about what might happen.”
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