US stocks post big monthly gains

Wall Street closed mostly higher after a volatile session, as both the Dow and S&P recorded rises in May of over 4 per cent.

Investors have been encouraged in recent weeks by signs of the US economy reopening. Picture: AP

The S&P 500 edged up, notching a second consecutive week of strong gains and its best two-month performance since 2009.

Investors have been encouraged in recent weeks by signs of states and businesses around the country reopening, helping stocks rebound from their March lows. New York Governor. Andrew Cuomo said on Friday that New York City is on track for an initial reopening on June 8.

The S&P 500 and Dow Jones Industrial Average both climbed more than 4 per cent in May, building on April’s robust rally when the indexes posted their best monthly percentage gains since 1987. The two-month rally has cut the indexes’ losses for the year to 5.8 per cent and 11 per cent, respectively.

The rally was initially led by shares of big technology companies, which helped the Nasdaq Composite outperform. The tech-heavy index rose 6.8 per cent in May and is up 5.8 per cent for 2020.

But the market’s leadership has shifted over the past two weeks, and the latest leg of the rebound has been underpinned by shares of companies that were considered laggards just weeks ago.

Investors have turned to shares of financial companies and cooled toward the tech giants, for now. Financial companies in the S&P 500 jumped 6.6 per cent this week, while the information-technology sector inched up 1.2 per cent.

To many observers, the climb in value stocks like financials, which typically trade at low multiples of their book values, is a sign that investors are bracing for a broader economic recovery ahead.

“People keep rotating back and forth” between shares of companies that will do well if the economy continues to reopen and stocks that will thrive if people stay at home, said Ilya Feygin, managing director at WallachBeth Capital. “That’s the major issue that people are grappling with.”

Some investors have said the worst is over for the domestic economy.

Fresh data Friday showed that US consumer spending fell by a record 13.6 per cent in April during coronavirus lockdowns. But there are signs that purchasing is starting to pick up as states start to reopen businesses and Americans return to work.

The University of Michigan’s closely watched survey showed that a measure of consumer sentiment rose in May from April as Americans’ view of the economy improved.

“In my mind we have hit bottom,” said Eddie Perkin, chief equity investment officer at Eaton Vance. But, he added “I think it will be awhile before we get back to fully recovered.”

The sharp rally in stocks this week paused Thursday after Mr Trump said he would hold a Friday news conference about China. Major indexes also traded lower for much of Friday’s session.

During the highly anticipated event, President Trump said the US would end its relationship with the World Health Organization, suspend entry for Chinese foreign nationals whom the US views as a security risk and roll back some of the special preferences granted to Hong Kong.

To some, the late-day stock rally after the conference highlighted the resiliency of the US stock market and investors’ focus on an economic reopening.

“When news comes out, it’s almost like a relief that it’s not worse,” Mr Feygin said.

The S&P 500 closed up 14.58 points, or 0.5 per cent, at 3044.31. The Nasdaq Composite rose 120.88 points, or 1.3 per cent, to 9489.87. The Dow Jones Industrial Average finished down 17.53 points, or 0.1 per cent, to 25,383.11.

China and the US have been on a collision course in recent days following Beijing’s moves to clamp down on anti-government protesters in Hong Kong by imposing national-security laws on the city.

Any US measures on trade or against Chinese companies, and any Chinese retaliation, could have a greater impact than previous actions taken before the new coronavirus battered both economies, according to Colin Low, senior macro analyst at FSMOne.com in Singapore.

The yield on the benchmark 10-year US Treasury note edged down to 0.650 per cent, according to Tradeweb, from 0.703 per cent Thursday. Yields fall as bond prices rise.

Elsewhere, the pan-continental Stoxx Europe 600 dropped 1.4 per cent. Most major Asia-Pacific equity benchmarks closed lower, while the Hong Kong gauge lost 0.7 per cent.

With Avantika Chilkoti and Chong Koh Ping

Dow Jones Newswires