U.S. stocks rose to a nearly four-week high Monday as continuing gains in Treasuries pushed yields further below 2.9 percent, alleviating investor angst that higher rates will accelerate fiscal tightening. Oil climbed with gold.
The S&P 500 index gained for a third day, and the Dow Jones Industrial Average climbed to its highest level in almost a month, buoyed by strength in technology and financial shares. Volume was lower than usual as investors await the first public comments from Federal Reserve Chairman Jerome Powell today. The 10-year yield fell for a third straight day, reaching a two-week low. The dollar was little changed.
The S&P 500 gained 32.30 points, or 1.2 percent, to 2,779.60, with telecoms and technology stocks leading the way. For the second straight day, the market turned higher as the day wore on. That's an encouraging sign to investors who see the last hour of trading as being dominated by professional traders -- the so-called smart money.
The Dow rose 399.28, or 1.6 percent, to 25,709.27, and the Nasdaq composite gained 84.07, or 1.1 percent, to 7,421.46. All three indexes are back within 3.4 percent of their record highs.
"There was a lot of talk from various Federal Reserve related folks last week and that provided to a certain extent a sense of calm that we won't see rates spike in the second half of this year," said Matt Schreiber, president and chief investment strategist at New Jersey-based WBI Investments. "The market freaked out when they thought Jerome Powell might raise rates faster than expected -- his first comments are eagerly anticipated here."
Powell may help set a new direction for investors at a time when some of the biggest names in markets are at odds over the implications of this month's surge in U.S. bond yields. Morgan Stanley put out a bullish call on Treasuries on Monday, countering warnings on the securities from Goldman Sachs Group and Warren Buffett.
"I think you can very confidently say the worst is over for now," said Randy Frederick, vice president of trading and derivatives at the Schwab Center for Financial Research. "The concern I have is that it's recovering too quickly. Today's rally has been very surprising."
Frederick said he saw few reasons for a big move higher in stocks on Monday, with no big-ticket earnings or economic reports on the calendar. If the market continues rising at this rate, it could hit record heights again in the next couple of weeks. "And then we'd be vulnerable to another correction, so I'd prefer it to slow down a bit here," Frederick said.
What triggered the first correction, which is what traders call a 10 percent drop in stock prices, was fear that interest rates are set to march much higher, and quickly. Treasury yields have been climbing over the last month for a range of reasons, including higher expectations for inflation, a strengthening U.S. economy and the U.S. government's increased need to borrow.
"Investors are starting to realize and understand that this former low-rate, low-inflation environment is evolving," Erik Knutzen, multi-asset class chief investment officer at Neuberger Berman Group, said by phone. "Rates are going to higher levels, inflation is going to higher levels, and as long as rates and inflation, and to a certain extent the dollar, don't move too far too fast, then this can continue to be a reasonably good environment for equities and for credit."
Overseas, the Stoxx 600 index reached its highest level in three weeks. The pound and euro fluctuated, and Russia's ruble appreciated the most among emerging market currencies after S&P Global Ratings boosted its credit score to investment grade.
Meanwhile, Bank of Japan Governor Haruhiko Kuroda said the central bank has no plan to overhaul its current form of easing, adding that he saw no need to do another comprehensive assessment of the effectiveness of the bank's policies. Oil futures edged lower after Saudi Oil Minister Khalid Al-Falih said OPEC and its allies may ease output curbs in 2019 in a way that won't disturb the market. Bitcoin erased its decline and broke above $10,000.
Here are some key events scheduled for this week:
• Powell testifies before a House panel today. He'll discuss the Fed's Semi-Annual Monetary Policy Report and the state of the economy. Powell returns on Thursday before a Senate committee.
• Companies announcing earnings this week include: Vale, BASF, Standard Chartered, Bayer, Lowe's, Galaxy Entertainment Group, Anheuser-Busch InBev, Peugeot, WPP, and London Stock Exchange Group.
• U.K. Prime Minister Theresa May will deliver a speech on Britain's relationship with the European Union after its exit.
• A barrage of data is expected out of Japan including retail sales and industrial production Wednesday, and capital spending Thursday.
• In China, the official and Caixin purchasing managers' indexes on Wednesday and Thursday respectively may show growth momentum slowed slightly in February, though the signal may be clouded by the holidays.
Business on 02/27/2018