Stocks closed higher on Monday following an announcement by the U.S. Federal Reserve regarding its corporate bond purchasing program that boosted investor confidence, which had been wavering amid a spike in new COVID-19 cases.
Major Canadian and U.S. stock indexes reversed losses in afternoon trading, following the Fed’s decision to apply an indexing approach to its secondary market corporate credit facility to create a more diversified portfolio.
“The Fed’s corporate bond announcement gave a huge boost to equities towards the end of the session, despite the fact that the Central Bank already committed to purchasing bonds through certain ETFs,” said David Evanson, market commentator with Gorilla Trades, a stock selection service. “Direct purchases could be more selective, giving a helping hand to the firms most affected by the pandemic and the lockdowns. Most analysts still expect a wave of bankruptcies in the second half of the year, even in light of the relatively short lockdown period, and a second wave of outbreaks would make the Fed’s interventions even more crucial.”
He added, “The Dow’s almost 1400 point rally off its overnight high was nothing short spectacular, and it could mean that the fears of a second wave in the U.S. were overblown and stocks are ready to resume their historic recovery.”
A flood of liquidity in the form of fiscal and economic stimulus, along with uneven but steady re-openings of state and local economies, sparked a remarkable rally in the stock market since its late-March trough.
“No doubt the market liked it: Who doesn’t like more cake and ice cream?” said Robert Pavlik, chief investment strategist, senior portfolio manager at SlateStone Wealth LLC in New York.
“It fuels traders to buy individual stocks and take on higher risk because the Fed has backstopped the bond market and kept a tighter lid on interest rates,” he added.
On Wall Street, gains were led by cyclical stocks and tech, with S&P 500 financials among the days biggest percentage gainers.
“The banks probably have a bunch of corporate debt on their balance sheets and now there’s a buyer for it,” Pavlik added. “Someone’s going to be buying those bonds because the Fed is telling them it’s OK.”
But surging new cases of COVID-19 in China, where the pandemic originated, prompted the reintroduction of containment measures, and record hospitalizations in several U.S. states dampened investor risk appetite.
On the flipside, an uptick in China’s factory output and a much better-than-expected Empire State manufacturing report gave evidence that the pandemic-hobbled global economy was on the road to recovery.
Earlier, the U.S. Federal Reserve announced it had opened registration for its Main Street Lending program to help businesses weather the storm of mandated lockdowns.
Last week, the central bank provided its first pandemic era outlook, and market participants will be closely following Fed Chair Jerome Powell’s testimony this week before Congress for details on the central bank’s somber economic projections.
Unofficially, the Dow Jones Industrial Average rose 169.17 points, or 0.66%, to 25,774.71, the S&P 500 gained 26.37 points, or 0.87%, to 3,067.68 and the Nasdaq Composite added 138.26 points, or 1.44%, to 9,727.07.
The S&P/TSX Composite Index rose 103.09 points, or 0.68%, at 15,359.66. The energy and financials sector ended lower, with materials stocks spiking 2.05%. Bombardier lost 11.5% after S&P Dow Jones announced late Friday it will get the boot from the TSX 60 and the TSX Composite. BlackBerry is also being removed, as of next week, from the TSX 60, and its shares lost 5.3%.
Gold fell 0.6% on Monday as the dollar hovered near a more than one-week high, but the metal held above US$1,700 an ounce, buoyed by fears of a second wave of coronavirus infections.
Oil prices rose more than 2% as signs that fuel demand was recovering, while OPEC+ members were complying with a production cut deal, outweighed fears that new coronavirus infections could further slow the global economy.
U.S. West Texas Intermediate crude rose 86 cents, or 2.4%, to settle at $37.12 a barrel. Brent crude gained 99 cents, or 2.6%, to settle at $39.72 a barrel.
Prices rebounded from early losses after the energy minister of the United Arab Emirates voiced confidence that OPEC+ countries with poor compliance to agreed cuts would meet their commitments and reported signs oil demand was picking up.
Read more: Stocks that saw action Monday - and why
Reuters, Globe staff
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