S&P 500 on Course for New High

By Anna Hirtenstein and Paul Vigna 

U.S. stocks jumped Thursday as investors cheered encouraging data on the economy, a strong batch of corporate earnings and the prospect of as much as $1.8 trillion in new government spending.

The Dow Jones Industrial Average gained 0.7%, while the S&P 500 added 0.7% to close at a fresh record. The Nasdaq Composite climbed 0.2%.

Stocks rose early, but then fell into the red as bond yields jumped, repeating the recent pattern of intraday swings. Such volatility isn't unusual given the market's current state, said Katerina Simonetti, senior vice president at Morgan Stanley Private Wealth Management.

"Naturally there's a certain level of apprehension," she said, pointing to the size and pace of stocks' gains. At some point, growth in the economy and markets have to slow down, she added.

The morning provided investors with fresh signs of the economy's recovery. The U.S. economy grew at a 6.4% rate in the first quarter, approaching its pre-pandemic size, and weekly jobless claims fell to their lowest level since the pandemic began last year.

The economy is getting a boost from two main sources, said Nancy Vanden Houten, the chief economist at Oxford Economics. One is the receding pandemic -- at least in the U.S. -- and the reopening of the economy, and the other is the stimulus efforts from both the federal government and Federal Reserve.

"We're on a really good path here," she said, while acknowledging a full recovery is still a long way off, a sentiment echoed by the Federal Reserve itself on Wednesday.

A fresh boost could come in the form of a new federal stimulus program. President Biden outlined proposals Wednesday for his new American Families Plan, which would boost spending on child care, education and paid leave. Investors' optimism was also buoyed after Federal Reserve Chairman Jerome Powell said the central bank would continue supporting the economy, while noting signs that growth has revived and the labor market is strengthening.

"In this environment, it is very difficult to be bearish," said Gregory Perdon, co-chief investment officer at private bank Arbuthnot Latham.

A high level of household savings is morphing into consumer spending as the economy reopens and will also deliver a boost, he added. "I struggle to see any factor over the course of the next six months that would outweigh this ready-steady-spend narrative."

Mr. Powell on Wednesday said the recent rise in inflation largely reflected "transitory factors," and that the Fed would hold rates steady until the labor market is back to full strength and inflation has reached the central bank's goal of averaging 2%. His comments helped reassure markets that the Fed won't shift course abruptly.

"They are going to let the economy run hot," Mr. Perdon said. "The prospect of there being a tightening in the very near term is just not on the table."

Earnings season is in full swing, with Amazon.com and Twitter slated to post results after market hours. In afternoon trading, Amazon rose 0.2% and Twitter dropped 1%.

Apple shares rose 0.6% after reporting that quarterly profit more than doubled to a record and saying it expects the surge in sales to continue. Facebook jumped 7.2% after it reported a boom in its ad business that drove revenue and profit sharply higher.

EBay tumbled 10% -- on course for its worst one-day loss since 2016 -- after saying it expects earnings for the current quarter to miss analysts' expectations. Qualcomm rose 4.2% after reporting a jump in revenue boosted by high demand for 5G phones. Comcast gained 4.3% after it posted a 55% rise in quarterly profit.

In the bond market, the yield on the 10-year Treasury note rose as high as 1.688%, its highest intraday level in more than two weeks, from 1.621% on Wednesday. It was most recently at 1.645%. Prices fall when yields rise.

"Growth is accelerating in most of the developed world," said Salman Baig, multiasset investment manager at Unigestion. "This environment of good growth and significant building inflationary pressures is a very negative environment for government bonds."

The rise in yields, which were as low as 0.915% at the start of the year, has curbed investor appetite for technology stocks, which often are afforded high price tags based on expectations of growth far into the future. The S&P 500's technology sector slipped 0.1%, one of only two declining sectors of the index's 11 groups.

Overseas, the pan-continental Stoxx Europe 600 fell 0.3%. The Shanghai Composite Index advanced 0.5%, and Hong Kong's Hang Seng added 0.8%.

Write to Anna Hirtenstein at [e-mail] and Paul Vigna at [e-mail]

(END) Dow Jones Newswires

April 29, 2021 16:22 ET (20:22 GMT)

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