Before The Bell
Stocks climbed to record highs on Monday in a continuation of the bullish pattern that resumed last week.
Shortly after the opening bell, all of the major averages had posted solid gains. Small-cap stocks showed particular strength.
The sectors seen as benefiting from the reopening of the economy as the year moves along outperformed. Notably, shares of energy companies benefited from rising oil prices. Financial stocks moved up on improving interest-rate spreads. Industrial shares were also among the leaders. The defensive-oriented utilities and real estate sectors lagged.
Part of the optimism stemmed from the thinking that President Biden’s proposed $1.9 trillion stimulus plan has a good chance of materializing.
Over the weekend, Treasury Secretary Janet Yellen made the case that a sizable relief package was necessary to restore full employment as quickly as possible.
On Friday, the Labor Department reported that employers added only 49,000 jobs in January, while the unemployment rate remained high at 6.3%. The biggest problem areas continue to be in segments that rely on going about in public, such as travel, entertainment, and leisure.
Mass vaccinations against the coronavirus are ramping up, but the process is taking time, given limited supplies and the size of the population.
There is nevertheless a strong feeling that business will pick up in the coming months as more people are inoculated and as restrictions ease. That has been the driving force behind the market’s impressive rally since November.
Positive corporate earnings surprises have also factored into the upturn. A number of big companies have handily surpassed profit expectations.
Meantime, the positive outlook for the economy is pushing bond yields to levels not seen in nearly a year. The yield on the 10-year Treasury note of 1.15% is notable in that the benchmark traded below 1.00% for much of 2020.
The rise off the bottom for interest rates has allowed investors to view bank stocks more favorably with the threat of negative yields, where lenders would be challenged to make money, fading.
Elsewhere, the pickup in oil prices is providing a tailwind for energy-related shares. Producers around the globe, including OPEC, its allies, and U.S.-based drillers, have committed to pausing expansion plans to support prices. Oil prices are now higher than at this point a year earlier, given the improving backdrop.
At the close, the Dow Jones Industrial Average was up 238 points; the S&P 500 gained 29 points; and the NASDAQ added 131 points.
Stock futures this morning point to a modestly lower opening.
- Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
