S&P 500 returns to a record high after best day in weeks

NEW YORK (AP) — United States (US) stocks burst to their best day in three weeks on Friday, helping Wall Street return to record heights and avoid what could have been a second straight weekly loss.

The S&P 500 added 65.02 points, or 1.7 per cent, to 3,974.54, with a quarter of that rise coming in the last five minutes of trading alone. Some of the biggest gains came from companies whose profits would jump the most if COVID-19 vaccinations and massive US government spending programmes juice the economy as much as economists expect. The index locked in a 1.7-per-cent gain for the week after losing 0.8 per cent last week.

The Dow Jones Industrial Average rose 453.40 points, or 1.4 per cent, to 33,072.88, and both it and the S&P 500 set all-time highs. The Nasdaq composite climbed 161.05, or 1.2 per cent, to 13,138.72, though it remains 6.8 per cent below its record set last month.

Stock prices have been churning in recent weeks, and momentum has often shifted sharply, sometimes by the hour. Rising expectations for a supercharged economic recovery are supporting many stocks on one hand, while worries about the possibility of higher inflation and rising interest rates are undercutting the market on the other.

This past week, everything from US President Joe Biden doubling his goal for COVID-19 vaccinations to a skyscraper-sized ship blocking one of the world’s most important canals sent markets swinging.

Trader William Lawrence works with fellow traders on the floor. PHOTO: AP

“It’s natural that you would have people looking at stocks of companies that would benefit the most from a rejuvenated economy,” said portfolio manager and President of Plumb Funds Tom Plumb. “But there are times when you are going to have a fair amount of volatility because a recovery like we are in has never been smooth.”

Much of the stock market’s recent turbulence has been an after-effect of movements in the bond market, where Treasury yields have been largely climbing since last autumn. Higher yields can make investors less willing to pay high prices for stocks, with companies seen as the most expensive taking the most pain. Companies that ask their investors to wait many years for the payoff of big profit growth have also been hit hard.

The yield on the 10-year Treasury rose to 1.67 per cent from 1.61 per cent late Thursday. But that’s still below where it was last week, when it rose above 1.70 per cent and touched its highest level since before the pandemic began.

A report on Friday also showed that a gauge of inflation that the Federal Reserve likes to use was weaker last month than economists expected. That took off some of the pressure of inflation worries in the near term.

The higher yields helped lift stocks of banks, in part because higher interest rates allow them to make bigger profits from making loans.

Financial stocks also got a boost after the Federal Reserve said it will soon allow banks to resume buying back their own stock and to send bigger dividend payments to shareholders.

The Fed restricted such moves last summer to force banks to hold onto cash cushions amid the coronavirus-caused recession.