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Oil Powers Stocks Higher Thursday

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Stock gains were strong by midday Thursday, as a continued rebound in oil prices supported sentiment. 

All three major U.S. indices rose more than they did in the morning, with the S&P 500 up as much as 1.3% at one point. Notably, the 10 year treasury yield remained pressured, staying at 0.61%. Investors need to see the interest rate environment stay low. 

By 12:45 eastern time, the S&P 500 briefly dipped slightly into the red before regaining momentum. 

Oil rose 27% to $17 a barrel, a continued rebound from negative prices earlier in the week, as storage capacity runs out and and oversupplied oil producers had seen their prices collapse. The recent rise in price indicates to the market that oil companies can rebound by the second half of the year, as prices do the same. This is supportive of employment. Still, some oil companies may have to cut capital spending and lay workers off in the near-term. 

But the market’s optimism on oil is consistent with its broader view that the economy will rebound after the Coronavirus-induced recession, as lockdowns ease and fiscal and monetary stimulus keeps flowing for the near-term. 

Exxon Mobil  (XOM)  and Chevron  (CVX)  have risen 40% and 55% since March 23, respectively, while the S&P 500 has risen 25% in that span. Thursday, Exxon and Chevron rose 5% and 4%. 

Also supporting sentiment is the government’s apparent ability to get spending legislation passed through Congress quickly so small businesses and can continue to enjoy a supported level of liquidity. The House will vote on the $484 billion spending plan, which includes more than $300 billion appropriated to the Small Business Administration for lending. 

Some are concerned that the fast burn though by small businesses through of the first batch will be replicated in this second batch or that it won’t be enough. Uncertainty about the sharpness of an economic remains, while stock valuations are stretched. 

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