U.S. Stocks Climb as Hopes Build for More Stimulus

By Caitlin Ostroff, Frances Yoon and Karen Langley

Stocks rose Wednesday as social unrest across the U.S. showed signs of calming and investors bet economic activity will improve with the ebbing of coronavirus infections and additional government stimulus.

The S&P 500 rose 1.2%, and the Dow Jones Industrial Average added about 430 points, or 1.7%. The technology-heavy Nasdaq Composite gained 0.6%, climbing to within 2% of February's all-time high.

Sectors that have been battered this year led the S&P 500, with the energy, financial and industrial groups each gaining more than 2%. Shares of small-cap companies also rallied, with the Russell 2000 index climbing 3%.

"The fact that we're seeing broader participation right now is indicative of increasing risk appetite among investors and more confidence in the equity market rally," said Ed Campbell, portfolio manager at QMA.

Investors are looking ahead to the U.S. jobs report Friday for insight into the state of the labor market. In a potential bright sign Wednesday, the ADP National Employment Report showed nonfarm private sector employment in the U.S. decreased by 2.76 million jobs in May, a smaller loss than economists expected.

Among individual stocks, shares of Lyft climbed 12% after the ride-hailing platform said demand had risen in recent weeks as people began venturing out following Covid-19 lockdowns. CrowdStrike Holdings shares rose 6.1% after the cybersecurity company raised its financial projections for the year.

Many cities in the eastern U.S. remained largely quiet overnight, with the violent outbursts and skirmishes of recent days abating, though protesters defied curfews in some areas. Markets have continued to rally over the past week despite the social unrest in the U.S. as investors bet that the protests sparked by the killing of George Floyd wouldn't curtail business activity or have a sustained impact on the economy.

Stimulus measures from governments and central banks in recent weeks have also opened the floodgates on cheap money, which is making its way into financial markets and boosting asset prices, investors say. President Trump plans to meet with senior advisers as soon as this week to discuss policy options for the next coronavirus relief package as the administration prepares for negotiations with Congress, according to a senior administration official.

Some investors are betting that there may be more stimulus coming in Europe as well, with the European Central Bank potentially opting to expand its bond-purchase program as early as its meeting Thursday. South Korea on Wednesday also proposed expanding fiscal spending to bolster the economy. The recent rally in global equity markets suggests that investors expect such measures to lead to a sharp recovery in economic output.

"The narrative is still a strong V-shaped recovery," said Peter Garnry, head of equity strategy at Saxo Bank. The market is being too optimistic in anticipating that "all this stimulus from governments and central banks will bring society from its near-death experience and the employment rate will get back considerably by the end of the year," he said.

The gradual easing of lockdown measures around the world has also failed to trigger a second wave of infections so far, fueling optimism in markets, said Patrick Spencer, managing director of U.S. investment firm Baird. Daily reported infections in the 10-most affected countries have continued to decline, according to data compiled by Johns Hopkins University.

"There's little evidence of a resurgence in the virus, and that's really bolstered investor confidence," Mr. Spencer said. "If basically the fundamentals aren't as bad as the market discounts, then markets will always improve and the news is getting less bad."

Progress toward a vaccine has also boosted sentiment. On Tuesday, Anthony Fauci, a leading expert in the U.S. government's response to the coronavirus pandemic, expressed cautious optimism that several successful vaccine candidates would prove effective "within a reasonable period of time" to fight coronavirus.

Overseas, the Stoxx Europe 600 gained 2.5%. South Korea's Kospi Composite led gains in the Asia-Pacific region, adding 2.9% after the government proposed an extra budget worth $28.9 billion, the third this year, to ease the economic impact of the coronavirus pandemic.

Global equity markets are being fueled by an improvement in business sentiment, gradual reopenings, subsiding concerns about an oversupply of oil, and additional stimulus measures, according to Kerry Craig, global market strategist for J.P. Morgan Asset Management. However, the abundance of risks calls for a cautious approach to investing, he said.

"It's difficult to say what factors could impede the performance in equities, but we have tensions rising between the U.S. and China, a U.S. election coming up, and there is a politically charged environment in the U.S. right now, so there are enough risks out there," Mr. Craig said. "We'd rather be more balanced right now than rotate into cheaper parts of the market."

The yield on the 10-year U.S. Treasury note rose to 0.764%, from 0.679% Tuesday. Yields rise as bond prices fall.

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com, Frances Yoon at frances.yoon@wsj.com and Karen Langley at karen.langley@wsj.com

  (END) Dow Jones Newswires
  06-03-20 1211ET
  Copyright (c) 2020 Dow Jones & Company, Inc.

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