»MONDAY'S CLOSE: Wall Street sinks as more bad economic signs rattle investors
Expectations for stronger demand for oil as more businesses get the green light to open helped drive crude oil prices sharply higher, extending its mini-rally after falling to record lows last month.
“It’s investors getting a little bit ahead of themselves,” said Willie Delwiche, investment strategist at Baird. “Maybe, it’s a sense of relief that we’ve made it this far and there’s some sort of a path forward, even if it’s not real clear.”
Delwiche noted that questions remain about at what pace will consumers venture out of their homes and spend money as shuttered businesses reopen.
“That’s the big unknown right now,” he said.
The S&P 500 gained 25.70 points to 2,868.44. The Dow Jones Industrial Average rose 133.33 points, or 0.6%, to 23,883.09. The Nasdaq climbed 98.41 points, or 1.1%, to 8,809.12. Small stocks in the Russell 2000 index were doing even better than their larger rivals for much of the day, before shedding some of their gains by late afternoon. The Russell 2000 rose 9.54 points, or 0.8%, to 1,273.51.
The stock market has been rallying since late March, as investors look beyond the devastation that is ravaging the global economy. They’re focusing instead on the prospects for a resumption of growth later in the year, as well as on the massive support for markets provided by the Federal Reserve. Many analysts are skeptical of the stock market’s rally, saying it’s overdone given all the uncertainty about how long the recession will last, but the S&P 500 has nevertheless more than halved its losses from its sell-off earlier in the year.
A report released Tuesday morning showed the U.S. services industry shrank for the first time in a decade, but it caused barely a ripple in the stock or bond market. It wasn’t quite as terrible as economists had forecast.
“What we should be watching for is not that things are good; things are not going to be good,” said Brad McMillan, chief investment officer for Commonwealth Financial Network. “We should be watching for signs that things are less bad.”
“Just getting people back to work and businesses open again can improve attitudes and confidence,” he said.
Hopes that the reopening of economies will eventually lead to a pickup in demand have also very recently helped oil prices pull off the floor. A barrel of U.S. oil to be delivered in June jumped 20.5% to settle at $24.56 Tuesday, up from a low point of $6.50 set late last month. It’s still well below the roughly $60 that it cost at the start of the year, after plunging on worries that the collapse in oil demand would lead to topped-out storage tanks.
Brent crude, the standard for international pricing, gained 13.9% to close at $30.97 per barrel.
“The feeling on the floor is that energy is in a better spot, and while it’s not brilliant,“ the gulf between oil supplies and demand “is starting to shift in a more positive direction,” Chris Weston of Pepperstone said in a report.
Technology stocks also continued their strong run. Apple rose 1.5%, and Microsoft gained 1.1%. The two companies alone account for 11% of the S&P 500’s entire market value. Tech stocks in the S&P 500 have nearly erased all their losses for 2020 so far, after earlier being down as much as 23%. The sector is now down 0.3%.
In Europe, Germany’s DAX rose 2.5%, the CAC 40 in Paris gained 2.4% and the FTSE 100 in London rose 1.7%.
Hong Kong’s Hang Seng added 1.1% as the government said it would relax some social distancing measures, allowing certain businesses such as gyms, cinemas and beauty salons to reopen and doubling the number of individuals allowed at public gatherings to a maximum of eight. Markets in Tokyo, Shanghai and Seoul were closed for holidays.
In another sign of a bit less pessimism in the market, the yield on the 10-year Treasury note ticked up to 0.66% from 0.63% late Monday. Treasury yields tend to rise when investors are upgrading their expectations for the economy and inflation. But it’s still well below the 1.90% it yielded at the start of the year.