Dow jumps 600 points, S&P 500 adds 2.5% in comeback from worst weekly loss in 2 years

FAN Editor

Stocks rose Tuesday following a brutal week as investors assessed a more aggressive Federal Reserve and rising chances of a recession.

The Dow Jones Industrial Average jumped 642 points, or 2.2%. The S&P 500 climbed 2.5%, and the Nasdaq Composite popped 2.5%. U.S. stock markets were closed Monday for Juneteenth.

Those moves followed last week’s declines that saw the S&P 500 post its worst week since 2020. Many investors fear that a rebound amid growing fears of a recession may be short-lived, though others expect that equities may be oversold after more accurately pricing in inflationary pressures.

The comeback was broad-based with 441 stocks of the S&P 500 in the green.

“The outstanding question is whether this is simply a bounce or the bottom,” said Sam Stovall, chief investment strategist at CFRA Research. “I think that this could certainly be a bounce but not the bottom because the one missing ingredient is a fear-based capitulation sell-off.”

Stovall thinks the S&P 500 could fall to around 3,200 before recovering, or a more than 30% decline from its record high.

Big bounces of this sort have been commonplace during this bear market. The S&P 500 has popped more than 2% on 10 other occasions since this bear began at the start of January, only to give up that gain and trade lower. Some investors have doubts that this bounce will be the one that marks the turn, especially with no apparent news or catalyst driving it.

S&P 500’s 2% gains during current bear market

Date % Change
4-May 2.99%
9-Mar 2.57%
28-Apr 2.47%
27-May 2.47%
Tuesday 2.45%
28-Jan 2.43%
13-May 2.39%
16-Mar 2.24%
25-Feb 2.24%
15-Mar 2.14%
17-May 2.02%

Source: FactSet

Energy was the best-performing sector in the S&P 500, up 5.1%, following a surge in oil prices. Brent crude futures traded 0.46% higher at $114.65 per barrel. West Texas Intermediate, the U.S. oil benchmark, gained nearly 1% to $110.65 per barrel.

Shares of Diamondback Energy jumped 8.2% and Exxon Mobil rose 6.2%. Shares of Schlumberger and Phillips 66 gained about 6%. Shares of Halliburton climbed 5.9%.

Mega-cap tech stocks also led gains. Shares of Google-parent Alphabet jumped more than 4%. Shares of Apple and Amazon both moved more than 3%.

Chip stocks posted gains with shares of Nvidia rising more than 5%, KLA jumping more than 4% and Advanced Micro Devices climbing 3%.

Elsewhere, Kellogg’s stock price rose more than 2% after the company said it would split into three separate companies.

Meanwhile, the yield on the benchmark 10-year Treasury note continued to march higher. Yields move inversely to prices.

The major averages suffered their 10th losing week in 11 last week on fears that the central bank will hike rates aggressively to tame inflation at the risk of causing an economic downturn. The S&P 500 dropped 5.8% last week for its biggest weekly loss since March 2020, dipping deeper into bear market territory. The equity benchmark is now more than 23% off its record high from early January.

The blue-chip Dow slid 4.8% last week, dipping below 30,000 for the first time since January 2021 last week. The tech-heavy Nasdaq Composite slipped 4.8% last week.

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The steep drop in equities appeared to signify the further weakening in investor confidence in the economic outlook and the Federal Reserve’s ability to navigate a soft landing. Investors continued to gauge the health of the economy.

“Increasing fear of slowing global growth is rearing its head and in our view will start to replace inflation as the major focus for investors going forward as we see whether or not these concerns are justified,” Credit Suisse’s David Sneddon wrote in a Tuesday report. “From a technical perspective, we are starting to see a deteriorating picture for Commodities and especially Industrial Metals, in line with these concerns.”

Fed Chair Jerome Powell will testify before Congress Wednesday and Thursday. His appearance comes after a recent rate hike by three-quarters of a percentage point, the central bank’s biggest increase since 1994.

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