Stocks soar on falling yields, jump in sales
NEW YORK – Wall Street rebounded smartly Wednesday, propelling the Dow Jones industrial average up 187 points as bond yields eased and economic data came in stronger than expected.
The Dow saw its biggest point gain since July 19, 2006, and more than made up for a plunge a day earlier that was fueled by the benchmark 10-year Treasury note yield’s surge to five-year highs. Rising bond yields amid inflation concerns had been pummeling stocks since last week.
Though rate worries still dog investors, their confidence perked up after the Commerce Department said Wednesday that retail sales jumped 1.4 percent in May. The rise, which followed a 0.1 percent decline in April, was the highest in 16 months and double the increase analysts expected. It signaled to the stock market that consumers plan to keep spending and pushing the economy along, even as gas prices and other costs increase.
Investors were also pleased about the Federal Reserve’s Beige Book report, which said the U.S. economy kept expanding at a moderate pace in the first part of the second quarter. The central bank’s next meeting on interest rates will be held in two weeks.
Though the strong economic snapshots inspired buying Wednesday, market watchers noted that an uptick in growth raises the chance of a rate increase later this year and that bonds are still trading near multiyear highs.
“This is a classic demonstration of the market’s continuing denial of risk,” said Robert Brown, chief investment officer at Genworth Financial Asset Management, contending that while the economic news is generally favorable, investors aren’t pricing in adequate amounts of risk. “It wants to ignore the negative news and focus solely on the positive.
“It wants to go up and it has the fuel to do it.”
According to preliminary calculations, the Dow Jones industrial average jumped 187.34, or 1.41 percent, to 13,482.35, after bouncing around earlier in the session as investors weighed the possibility of rising interest rates.
Broader stock indicators also advanced sharply. The Standard & Poor’s 500 index rose 22.67, or 1.52 percent, to 1,515.67, and the Nasdaq composite index rose 32.54, or 1.28 percent, to 2,582.31.
The S&P 500 and Nasdaq indexes both saw their largest point gains since March 21.
Bond yields spiked early Wednesday before falling back as investors re-entered the market to take advantage of low prices, which move in the opposite direction of yields. The yield on the benchmark 10-year Treasury note slipped to 5.21 percent from 5.295 percent Tuesday.