U.S. stocks rose on Tuesday as global equities markets again hit a record high and oil rose, showing investors have grown more confident about rising inflation while betting that imminent U.S. data will cast light on the state of the economic recovery.
Positive sentiment has pushed major indexes back toward all-time highs in recent weeks, analysts say, after data showing a jump in U.S. inflation prompted markets to stutter earlier in May. The S&P 500 closed on Friday before the U.S. Memorial Day holiday at its third-highest level in history.
The Dow Jones Industrial Average rose 170.98 points, or 0.5%, to 34,700.43, the S&P 500 gained 15.44 points, or 0.37%, to 4,219.55, and the Nasdaq Composite added 34.09 points, or 0.25%, to 13,782.83.
Traders have had to balance optimism that some key markets are reopening after pandemic lockdowns with concern that accelerating inflation could prompt central banks to rein in stimulus programs.
The recovery from COVID-19 also remains patchy in many parts of the world, with exports reviving but broader economic activity still dampened by measures to contain fresh outbreaks.
Against that backdrop, May eurozone inflation came in higher than expected at 2%, driven by rising energy costs, above the European Central Bank’s target of below but close to 2% – and with even higher levels expected later in the year.
U.S. manufacturing activity picked up in May, the Institute for Supply Management (ISM) said on Tuesday as its index of national factory activity increased to a reading of 61.2 last month from 60.7 in April. Pent-up demand amid a reopening economy has boosted orders, but unfinished work has piled up because of shortages of raw materials and labour.
New U.S. jobs data on Friday should also give a firmer steer on near-term Fed policy action.
In advance of that, MSCI’s gauge of stocks across the globe gained 0.52%, led by broad gains across Europe’s leading indexes, while the STOXX Europe 600 extended gains to trade up 1.1%.
“Although global stocks are now around 20% above pre-pandemic highs, a combination of strong earnings growth and reasonable valuations relative to still-low bond yields points to further upside for stocks,” said Mark Haefele, chief investment officer, UBS Global Wealth Management.
OIL GAINS
Overnight, MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.52% higher, while Japan’s Nikkei lost 0.16%.
South Korean stocks rose 0.6% after a jump in May exports, and Chinese stocks climbed 0.2% after data showing factory activity expanded at the fastest pace this year in May.
This week’s main event is Friday’s U.S. payrolls data, with markets looking for a signal from the Federal Reserve on when it will start tapering its bond-buying program. Median forecasts are that 650,000 jobs were added in May, but the outcome is uncertain following April’s unexpectedly weak 266,000 gain. Though U.S. inflation data last week exceeded estimates, another big miss on the jobs front would delay prospects for any wind-down of stimulus, analysts say.
Societe Generale strategist Sebastien Galy said he expected the jobs data to come in below or in line with consensus, but, given low levels of equity volatility, markets were primed for a jump on higher-than-expected numbers.
“We remain constructive on risk as we expect a disappointment on NFP (non-farm payrolls), but the equity volatility market is likely to reprice higher from its rather extreme lows,” he said in a note to clients. As traders awaited clues on Fed direction, the dollar index fell 0.082%, with the euro up 0.15% to $1.2243 while the yield on U.S. 10-year government debt last fell 13/32 in price to yield 1.6369%, from 1.593%
Concerns about global inflation have driven gold up 8% this month to comfortably above $1,900. Oil prices, meanwhile, extended gains ahead of an OPEC+ meeting and on optimism that fuel demand will grow in coming months as the U.S. summer driving season gets underway. U.S. crude recently rose 3.5% to $68.64 per barrel and Brent was at $71.15, up 2.64% on the day.
