Hope takes the reins on Wall Street, stocks rally worldwide

NEW YORK (AP) — In Wall Street’s tug of war between hope and pessimism about the coronavirus pandemic, hope is fighting back.

United States (US) stocks joined a worldwide rally and closed out their first back-to-back weekly gain since the market began selling off two months ago. The S&P 500 jumped 2.7 per cent for the day, following up on even bigger gains in Europe and Asia.

Investors latched onto several strands of hope about progress in the fight against the coronavirus. They included the White House’s release of guidelines for states to reopen their economies and a very early but encouraging report on a possible treatment for COVID-19. Those events dovetailed with recent numbers that raised hopes for a levelling off of infections in some of the world’s hotspots.

The gains came even as data piles higher showing the severe economic and human toll of the outbreak. The virus has killed more than 150,000 worldwide and forced the formerly high-flying Chinese economy to shrink a crunching 6.8 per cent last quarter. A measure of leading economic indicators in the US plunged last month by the most in its 60-year history, the latest in a string of similarly unprecedented data reports.

The S&P 500 rose 75.01 points to 2,874.56. The Dow Jones Industrial Average jumped 704.81, or three per cent, to 24,242.49, and the Nasdaq added 117.78, or 1.4 per cent,
to 8,650.14.

A currency trader watches monitors at the foreign exchange dealing room of the KEB Hana Bank headquarters in Seoul, South Korea. PHOTO: AP

“There’s no clear path yet” on when the pandemic and the economic devastation it caused will end, said Chief Investment Strategist at Ally Invest Lindsey Bell.

That caused the stock market to cycle up, down and up again, sometimes in the same day, as it tries to set prices now for where corporate profits will be months in the future.

Optimists have been more forceful recently as they point to infections levelling off in some hard-hit areas around the world. That raises the possibility that parts of the economy could reopen — although not tomorrow — and eventually boost profits, which are currently expected to fall by roughly 25 per cent in the second quarter, according to FactSet. Optimists are willing to look through all the economic damage in the near term, which is being mitigated somewhat by massive aid from the Federal Reserve and the US Government.

“Just having that light at the end of the tunnel is what people really want to see,” said Chief Market Strategist at TD Ameritrade JJ Kinahan.

The S&P 500 fell about 33 per cent from its all-time high on February 19 to March 23 as the virus moved quickly from Asia to Europe to the US, largely shutting down economies as it went. The market has recovered a little more than half of those losses since.

Pessimists said the recent rally for stocks has been overdone and point to the severe pain shocking the health care system and the economy. They said conditions are unlikely to get back to anything approximating “normal” soon. Even the unprecedented aid from the Fed and Congress will not be nearly enough for households and businesses to weather a protracted downturn.

“We’re trying to bridge from the current state to the aftermath, and that bridge is just not long enough,” said Chief Investment Officer at US Bank Wealth Management Eric Freedman. “That’s the bearish case, that consumers are impacted beyond what the policy can provide because the virus extends and people really hold off on making more expenditures.”

In a sign of a bit less caution in the market, Treasury yields ticked higher but remain extremely low. The yield on the 10-year Treasury rose to 0.64 per cent from 0.61 per cent late Thursday, though it remains well below the 1.90 per cent level it was near at the start of the year. Bond yields drop when their prices rise, and investors tend to buy Treasurys when they worry about the economy.

“The government can give the mandate to reopen the economy, but it’s going to be all about how comfortable consumers feel in going back to their workplace and how comfortable they feel about going back to restaurants or doing other activities around other people,” said Ally Invest’s Bell. “The best way for us to get any insight into that is to listen to what corporations say about how they’re going to bring back their workforce. Is it going to be at a 25 per cent rate? A 50 per cent rate?”

Investors could hear such commentary in upcoming weeks, with hundreds of CEOs scheduled to discuss how badly their profits got hit by stay-at-home orders in the first three months of the year.

The market’s gains were widespread on Friday, across all 11 sectors that comprise the S&P 500. Energy producers and banks led the way, a sharp turnaround from their laggardly ways earlier in the week when worries about the economy were at the forefront.

In European trading, the CAC 40 in Paris rose 3.4 per cent, while Germany’s DAX climbed 3.1 per cent. Britain’s FTSE 100 added 2.8 per cent.

Japan’s Nikkei 225 index jumped 3.1 per cent, the Hang Seng in Hong Kong advanced 1.6 per cent and South Korea’s Kospi leaped 3.1 per cent.

India’s S&P BSE 100 rose 2.8 per cent after the central bank cut its benchmark interest rate to help the stalled economy and ease financing troubles amid a nationwide lockdown to fight the pandemic.