Wall Street finished sharply higher on Tuesday, lifted by Apple, Tesla and other megacap growth stocks after strong retail sales in April eased worries about slowing economic growth. The TSX also posted strong gains in a broad rally, as some appetite for oversold sectors like technology returned despite concerns around soaring inflation.
Investors were cheered by data showing U.S. retail sales increased 0.9% in April as consumers bought motor vehicles amid an improvement in supply and frequented restaurants.
Another set of U.S. economic data showed industrial production accelerated 1.1% last month, higher than estimates of 0.5%, and faster than a 0.9% advance in March.
“This is consistent with continued economic growth in the second quarter and not a recession underway,” said Bill Adams, chief economist for Comerica Bank in Dallas.
The U.S. Federal Reserve will “keep pushing” to tighten U.S. monetary policy until it is clear inflation is declining, Fed Chair Jerome Powell said at an event on Tuesday.
The comments confirmed the market’s view that the Fed is focused on easing price pressures even as stock market prices wobble and some investors worry that aggressive tightening will tip the U.S. economy into recession.
“We’ve always known that ‘neutral’ is very difficult to estimate, and so the idea that the Fed was going hike a while and then pause and look around was out there, and it was on the table, but he just told us that isn’t going to occur,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets in New York.
“This is very consistent with what we’ve seen in the past, which is once the Fed starts hiking, they continue to hike until something breaks. Now the question becomes, is what we should be looking at as a potential break the equity market? is it credit? is it housing? I think that’s going to be this cycle’s big unknown,” Lyngen added.
Traders are pricing in an 85% chance of a 50-basis point rate hike in June.
Tuesday’s broad rally followed weeks of selling on the U.S. stock market that last week saw the S&P 500 sink to its lowest level since March 2021.
“The largest pockets of stocks that investors tend to buy have been essentially beaten up. They’re either in correction or bear market territory,” said Sylvia Jablonski, chief investment officer of Defiance ETF. “I think investors are looking at these opportunities to buy on the dip, and I suspect that today is a good day to do that.”
The S&P 500 Banks index jumped 3.8%, with Citigroup climbing almost 8% after Warren Buffett’s Berkshire Hathaway disclosed a nearly $3 billion investment in the U.S. lender.
Ten of the 11 major S&P sector indexes advanced, with financials, materials, consumer discretionary and technology all gaining more than 2%.
Recently punished shares of Microsoft Corp, Apple Inc, Tesla Inc and Amazon gained between 2% and 5.1%, driving the S&P 500 and the Nasdaq higher.
The S&P 500 climbed 2.02% to end the session at 4,088.85 points.
The Nasdaq gained 2.76% to 11,984.52 points, while Dow Jones Industrial Average rose 1.34% to 32,654.59 points.
Underscoring Wall Street’s recent volatility, the S&P 500 has gained or lost 2% or more in a session some 39 times so far in 2022, compared to 24 times in all of 2021.
Walmart Inc tumbled 11.4% after the retail giant cut its annual profit forecast, signaling a hit to its margins. That marked the biggest one-day percentage drop for Walmart’s stock since 1987.
Retailers Costco, Target and Dollar Tree fell between 0.8% and 3.2%.
United Airlines Holdings Inc gained 7.9% after the carrier lifted its current-quarter revenue forecast, boosting shares of Delta Air, American Airlines and Spirit Airlines.
A positive first-quarter earnings season has been overshadowed by worries about the conflict in Ukraine, soaring inflation, COVID-19 lockdowns in China and aggressive policy tightening by central banks.
The S&P 500 is down about 14% so far in 2022, and the Nasdaq is off around 23%, hit by tumbling growth stocks.
U.S.-listed Chinese stocks jumped on hopes that China will ease its crackdown on the technology sector.
Advancing issues outnumbered declining ones on the NYSE by a 2.92-to-1 ratio; on Nasdaq, a 3.19-to-1 ratio favored advancers. The S&P 500 posted one new 52-week high and 30 new lows; the Nasdaq Composite recorded 24 new highs and 126 new lows. Volume on U.S. exchanges was 12.0 billion shares, compared with a 13.3 billion average over the last 20 trading days.
The Toronto Stock Exchange’s S&P/TSX composite index closed up 284.6 points, or 1.41%, at 20,491.01.
Toronto-listed technology stocks jumped 2.15%, tracking gains in the United States’ tech-heavy Nasdaq index. The broader index’s gains were led by cloud-based software firm Dye & Durham, which surged 22% to its highest close in over six weeks.
Healthcare stocks led the overall index’s gains, rising 3.1% with pot producers Canopy Growth, Aurora Cannabis and Cronos Group up between 3.3% and 4.6%.
Basic materials posted the second-biggest gains on the index, adding 2.1%. They followed copper prices, which rose 1.1% as metals consumer China eased pandemic restrictions, stoking hopes for improved demand.
In contrast, gold producers including IAMGOLD Corp and Centerra Gold were among the 10 biggest decliners on the Toronto index, tracking losses in spot gold, which fell on robust U.S. retail sales data and expectations of aggressive interest rate hikes.
The energy sector climbed 1.5% although crude oil, which hit a seven-week high earlier in the session, fell 1.9% , on news that the United States would ease some restrictions on Venezuela’s government.
The financials sector gained 1.5%, while the industrials sector rose 2.0%.
The benchmark index last week recorded its seventh consecutive weekly losses, hurt by a recent sell-off in equity markets on concerns around an aggressive policy tightening by central banks to curb inflation.
Benchmark 10-year notes were last at 2.973%, up nine basis points on the day. The yields hit a 3-1/2-year high of 3.203% on May 9 as investors adjusted for the prospect of even more aggressive Fed policy.
But they have dipped in the past week as investors also worry that the rapid monetary tightening may strangle growth and send the economy into a downturn.
Reuters, Globe staff
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