The wave of hope was so strong that investors completely bypassed a report showing that the epidemic had led the US economy to its worst quarterly performance since the Great Recession. The S&P 500 jumped 2.7% and extended a rally that brought the US stock market to the brink of its best month in 45 years.
The spark at the rally on Wednesday was a report that an investigational drug had shown to be effective against the new coronavirus in a study by the National Institutes of Health. The top infectious disease expert in the country said the drug shortened the time it took for patients to recover and raised hopes that life in the world might eventually tip over to “normal”.
The S&P 500 rose 76.12 points to 2,939.51. It jumped 13.7% in April, and it is one day from the end of its best month since late 1974.
The Dow Jones Industrial Average rose 532.31, or 2.2%, to 24,633.86, and the Nasdaq rose 306.98, or 3.6%, to 8,914.71.
“What you see now is that you have this debate between optimism and realism,” said Adam Taback, chief investment officer for Wells Fargo Private Wealth Management.
The Federal Reserve said on Wednesday that it expects the health crisis to weigh on the economy “in the medium term” because it has promised to keep aid amounts and massive interest rates in place. almost zero. Oil prices, bonds and other markets in addition to stocks have also been dominated in recent weeks by concerns over the economic impact of the virus epidemic.
“Everything except stocks tells you that things aren’t great,” said Taback. “This market is too optimistic. “
Gilead’s publication about his remdesivir hit the markets at the same time as a government report showing the US economy shrank at an annual rate of 4.8% in the first three months of the year.
Job losses have exploded since early April as layoffs sweep across the country following widespread home support orders, and economists expect even worse figures for the second quarter of the year.
The first quarter figure was “just the tip of the iceberg,” said Michael Reynolds, chief investment officer at Glenmede.
But stocks have rallied in the past month, with investors looking beyond the current economic devastation and focusing instead on the prospect of a gradual reopening of economies. Some states and nations of the United States around the world have plans to ease restrictions by keeping people at home and businesses private from customers. Any new treatment for COVID-19 could also reduce the dread so prevalent among households and businesses around the world.
But what sparked the 31.4% resumption of the S&P 500 in late March was the massive help from the Federal Reserve and Congress. The Fed said on Wednesday that it would not withdraw aid anytime soon.
Perhaps the most pessimistic about market easing on the economy’s trajectory is the performance of smaller stocks.
When fears of a recession were at their height, investors punished small-cap stocks and sent them down more sharply than the rest of the market, in part due to concerns about their more limited financial resources. But the Russell 2000 small cap index jumped 4.8% on Wednesday. It rose 10.4% this week alone, more than double the gain for the largest equity indexes.
Market gains were widespread and accelerated throughout the day. The big tech and communications stocks helped lead the way after Google’s parent company said its earnings were higher in the first three months of the year than Wall Street expected.
Alphabet jumped nearly 9%, which helped the S&P 500’s communications stocks increase 5% for one of the largest gains among the 11 sectors in the index.
In Europe, the French CAC 40 increased by 2.2% after having fallen before the Gilead report. The German DAX posted a return of 2.9% and the FTSE 100 in London 2.6%. In Asia, the Hang Seng in Hong Kong increased by 0.3% and the Kospi in Seoul increased by 0.7%.
Many professional investors are skeptical of the big rally in the US stock market. There is still a lot of uncertainty about how long the recession will last.
The vigorous rise in stocks over the past month also means that investors are seeing a relatively rapid rebound in the economy and profits after the current devastation. But it may take some time for households and businesses to get back to what it used to be.
“My concern is that the market is starting to focus a little more on rewards and less on risk right now,” said Sal Bruno, chief investment officer at IndexIQ. “Maybe investors are getting a little too enthusiastic. “
“I don’t think you just flip the switch and everyone goes back to work immediately,” he said.
The 10-year US Treasury yield rose to 0.62% from 0.61% Tuesday evening after offsetting previous losses. Yields tend to rise when investors revalue economic and inflation expectations.
Oil prices continue to fluctuate extremely after a collapse in demand has sent crude storage tanks near their limits. US benchmark crude oil for June delivery increased $ 2.72, or 22%, to $ 15.06 a barrel on Wednesday. Brent crude oil, the international standard, rose $ 2.08, or 10.2%, to $ 22.54 per barrel.
AP business writer Joe McDonald contributed.
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