Wall Street closed sharply higher on Monday after two months of massive panic selling. Market participants invested in highly beaten down stocks despite remained concerned regarding soaring inflation, an ultra-hawkish Fed and geopolitical conflicts. President Biden’s statement of considering removing some of import duties on Chinese goods also lifted investors’ sentiment. All three major stock indexes ended in positive territory.
How Did The Benchmarks Perform?
The Dow Jones Industrial Average (DJI) surged 2% or 618.34 points to close at 31,880.24. Notably, 27 components of the 30-stock index ended in positive territory while 3 in negative zone. The blue-chip index recorded its largest daily percentage gain since May 4.
The tech-heavy Nasdaq Composite finished at 11.535.27, advancing 1.6% or 180.66 points due to the strong performance of large-cap technology stocks. The tech-laden index posted its largest daily percentage gain since May 17. However, the index is currently in bear market.
Meanwhile, the S&P 500 climbed 1.9% to end at 3,973.75. The broad-market index registered its largest daily percentage gain since May 17. All 11 broad sectors of the benchmark index closed in positive zone. The Financials Select Sector SPDR (XLF), the Consumer Staples Select Sector SPDR (XLP), the Technology Select Sector SPDR (XLK) and the Energy Select Sector SPDR (XLE) advanced 3.3%, 2.1%, 2.3% and 2.6%, respectively.
The fear-gauge CBOE Volatility Index (VIX) was down 3.2% to 28.48. A total of 10.93 billion shares were traded Monday, lower than the last 20-session average of 13.36 billion. Advancers outnumbered decliners on the NYSE by a 2.43-to-1 ratio. On Nasdaq, a 1.44-to-1 ratio favored advancing issues.
President Biden’s Statement
President Joe Biden said that his administration is considering reducing some of the tariffs on Chinese goods imposed by the former Trump administration. Imposition of import duties on Chinese products resulted in trade war between the two largest trading nations of the world.
The Trump administration had imposed tariffs on more than $300 billion Chinses goods following an investigation that China stole intellectual property from American companies and forced them to transfer technology.
Moreover, President Biden has also urged the OPEC to raise production in order to reduce elevated oil prices, which is the major source of galloping inflation. Commodity prices have jumped after the Russian invasion in Ukraine.
Buy on The Dip
Investors purchased highly beaten down stocks as their valuation become more attractive. Consequently, shares of Apple Inc.
AAPL
, Alphabet Inc.
GOOGL
and The Goldman Sachs Group Inc.
GS
rallied 4%, 2.4% and 3.2%, respectively. All three stocks currently carry a Zacks Rank #3 (Hold). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
.
Immediate Concerns
Wall Street has been witnessing a sharp fall since April. Several measures of inflation are currently at a 40-year high and showing no signs of climb down. The global supply-chain system is in a mess. China is yet recover fully from the resurgence of COVID-19.
More painful is that together Ukraine and Russia were the largest wheat exporters globally. Food inflation has jumped after several Asian and African countries decided to ban exports of agricultural and poultry products.
The Fed has already hiked the benchmark lending rate by 75 basis points and has given a clear indication of two more rate hikes of 50 basis points each in June and July. The central bank terminated the $120 billion monthly quantitative easing program in March and will start shrinking its $9 trillion balance sheet from June. On May 12, Fed Chair Jerome Powell admitted that he cannot give any guarantee for a soft landing of the economy under a higher interest rate regime.
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