Stocks notched their best quarter in decades, as government stimulus and low interest rates helped markets start to recover from the damage of the coronavirus pandemic at the start of the year.
The rebound marks an about-face after Wall Street posted its worst period since the 2008 financial crisis when the pandemic battered the global economy in the first three months of the year.
A series of fiscal and monetary stimulus measures from Washington and the Federal Reserve have helped calm financial markets in recent months after policymakers rushed to support the economy from the deepest economic slump since the 1930s. The stock market’s gains come as a staggering 47 million Americans have filed for first time unemployment benefits in just 14 weeks following a wave of layoffs.
“The rebound sparked concerns that the markets have become unmoored from economic reality,” analysts at T. Rowe Price said in a note. “There remains significant uncertainty about the pandemic, which will likely lead to continued market volatility as businesses and consumers adapt to further disruptions in the global economy.”
The Dow Jones industrial average posted its strongest quarter since 1987 after surging 17.8% in the past three months. On Tuesday, the blue-chip average rose 217.08 points, or 0.9%, to 25,812.88.
The Standard & Poor’s 500 soared nearly 20% in the second quarter, its best quarterly gain since 1998. It climbed 1.5% Tuesday to 3,100.29. The Nasdaq Composite rallied 30.6% in the second quarter, its best such period since 1999. The technology-heavy index advanced 1.9% Tuesday to 10,058.76.
The S&P 500 has rallied within about 9% of its February record, bouncing back more than 35% since the March lows.
A recent bout of volatility, however, could threaten the stock market’s rebound as a resurgence in virus cases stoke fears of another round of lockdowns.
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Investors have weighed evidence of an economic recovery against a rise in reported coronavirus contagions in some countries and states. Traders are worried about Texas and other states having to roll back their reopening plans as infections surge.
The number of confirmed cases globally is over 10.3 million, and the death toll is more than 505,500. There are more than 2.5 million cases in the U.S. and an excess of 129,000 deaths, according to the Johns Hopkins University data dashboard.
New infections could increase to 100,000 a day if the nation doesn’t get the ongoing surge under control, Dr. Anthony Fauci, the top infectious disease expert at the National Institutes of Health, told Congress Tuesday.
The major risks investors face in the second half of the year include uncertainty around a second wave of the virus, the upcoming U.S. presidential election in November and renewed trade tensions with China, analysts say.
“While the initial stages of lockdown easing have delivered a substantial bounce in activity, the next phase of the transition to normal will be far harder and the speed will be contingent on the number of new COVID-19 cases,” Ben May, director of global macro research at Oxford Economics, said in a note. “The renewed rises in COVID-19 cases in parts of the U.S. is a clear worry.”
A simmering trade dispute between Washington and Beijing has reemerged after the world’s two biggest economies signed a “Phase One” trade deal in January following an 18-month trade spat. Relations later deteriorated when the Trump administration blamed China for not sounding the alarm about the pandemic earlier.
Meanwhile, if Democrats sweep Capitol Hill and the White House, which many investors see as at least possible, it could mean higher tax rates, which could weaken corporate profits.
“The world is increasingly becoming bifurcated, with the U.S. and China at opposite poles,” BlackRock analysts said in the firm’s 2020 Midyear Outlook report. “Domestic polarization is on the rise, too, with the U.S. presidential election set to take place against the most tumultuous domestic backdrop since 1968. The two parties are as far apart on policy as they have ever been, making the result consequential for markets.”
On Tuesday, Fed Chairman Jerome Powell and Treasury Secretary Steven Mnuchin testified before the House Financial Services Committee about the pandemic response.
In prepared remarks, Powell repeated a pledge that the central bank will keep interest rates at their current ultra-low levels until it is sure the economy has weathered the pandemic crisis.
The outlook for the U.S. economy is “extraordinarily uncertain” and the success of the recovery effort will depend in large part on the country’s ability to contain the spread of the pandemic, according to testimony from Powell released Monday by the Fed.
“A full recovery is unlikely until people are confident that it is safe to re-engage in a broad range of activities,” Powell says.
Investors will get further clues about the health of the economy when weekly unemployment aid applications and the June jobs report are both released Thursday.
Markets overseas were buoyed somewhat by stronger than expected manufacturing data from China, the world’s second-largest economy. But other new economic indicators were mixed.
A barrel of U.S. crude oil slid 43 cents to settle at $39.27 Tuesday, but it’s still nearly double where it was at the end of the first quarter. It’s also in a different world from April, when prices in one corner of the U.S. crude market briefly went below zero amid worries that collapsing demand would leave nowhere to store all the unused oil. Brent crude oil fell 56 cents to settle at $41.15 a barrel.
The yield on the 10-year Treasury rose to 0.66% from 0.63% late Monday. It too has rallied back from its lows when recession worries were at their height. It set a record low in March when it briefly dipped below 0.50%, according to Tradeweb. The yield tends to move with investors’ expectations for the economy and inflation.
In Europe, France’s CAC 40 dipped 0.2%, while Germany’s DAX gained 0.6%. Britain’s FTSE 100 lost 0.9%.
Elsewhere, Japan’s benchmark Nikkei 225 gained 1.3%. South Korea’s Kospi added 0.7% and Australia’s S&P/ASX 200 rose 1.4%. Hong Kong’s Hang Seng ticked up 0.5%. The Shanghai Composite closed up 0.8%.
Contributing: The Associated Press