Stocks surged Monday, even as new coronavirus cases remain elevated. Investors are hoping that fiscal stimulus is on its way and that it will act as a bridge to a second round of reopenings.
All three major U.S. indices rose considerably Monday, with the S&P 500 up 1.25% and the tech-heavy Nasdaq leading the way, up 1.5%. The 10-Year Treasury yield rose several basis points to 0.7%. Yields rise when prices fall.
Tech stocks, which investors often favor when economic worries hit, led. The NYSE FANG index rose 1.4%, but the iShares PHLX Semiconductor ETF (SOXX) - Get iShares PHLX Semiconductor ETF Report rose 2.35%, as analysts pointed out that the month of May saw 6.5% year-over-year growth in chips sales. Many chip manufacturers are exposed to positive trends like 5G devices and cloud and data center growth.
But cyclical stocks were more than participating in Monday's rally. Oil and banking stocks both rose around 2%, with banks enjoying the steepening of the yield curve. Retail stocks rose more than 1%.
This all comes as the 5-day moving average of new coronavirus cases in the U.S. is sitting between 45,000 and 50,000 in the past week, according to Johns Hopkins data. Before this second wave, the high was 36,000 in April.
"It appears that global investors are less sensitive to rising Covid cases, but as enthusiastic about the extra stimulus measures,” wrote Ipek Ozkardeskaya, senior analyst at Swiss Bank in emailed remarks to reporters. "The massive injection of cheap liquidity [from central banks] will likely continue inflating the asset prices."
President Trump has said he would support another round of grants to households. The House of Representatives passed the extension of the paycheck protection program, which provides cheap liquidity to small businesses on the condition that they retain employees. Monetary policy is flowing through the system daily, but these programs directly inject cash into the economy. The programs have already been proven to provide a bridge from the first bout of lockdowns to state reopenings.
Also, Uber is buying Postmates for more than $2 billion to expand its food-delivery business, which is seeing a stay-at-home tailwind, potentially a longer-term one. The stock rose 4.6%. to $32 a share.
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