The markets had a strong day, led by value stocks.
Dow Jones Industrial Average
rose 199.42 points, or 0.62%, to close at 32,619.48. The
gained 20.38 points, or 0.52%, to end at 3,909.52, and the
added 15.79 points, or 0.12%, to close at 12,977.68. The biggest gainer in the S&P 500 was Olive Garden parent
(ticker: DRI), which saw shares soar 8.2% after a strong earnings report.
Investors continued to buy the dip on value stocks, which generally represent mature companies in their earnings prime. The
Vanguard S&P 500 Value Index
exchange-traded fund (VOOV) rose 1%. The fund had fallen 2.5% from its all-time high in mid-March to Tuesday’s close. Value has had an impressive run this year, in the face of a rebounding economy. The value ETF is just below its all-time high, though.
“Right now, this is a spot where investors that have been looking to buy a dip will probably do so,” Frank Cappelleri, chief market technician at Instinet, told Barron’s.
Industrials, a sector whose fortune rides on a good economy, rose 1.6%, as measured by the
Industrial Select Sector SPDR
ETF (XLI), which is coming off a slump. Banks floated in the same boat Thursday, with the
SPDR S&P Bank
ETF (KBE) gaining 2.8%. Oil stocks had a relatively weak day, with the
Energy Select Sector SPDR
ETF (XLE) eking out a gain of just 0.4%, as the price of crude oil fell 4.5% to $58.40 a barrel. Oil has recently touched its highest price in more than two years, hitting $66 in early March.
Meanwhile, growth stocks were weak Thursday. The value ETF’s
(VOOG) ended slightly in the red, but nearly flat, and more than 5% below an all-time-high set in early February. Growth stocks are generally hampered when long-term interest rates soar and erode the value of future profits. Growth companies typically won’t see the bulk of their profits for years.
And while rates have paused their rise—which reflects firming inflation and economic demand—they are bound to keep rising, which is keeping a lid on growth stocks. The yield on the 10-year Treasury bond is still below the expected future rate of inflation. That means Treasury investors are losing value against inflation.
Even though growth stocks account for more than a quarter of the S&P 500’s market capitalization, the index was still able to rise. Just over 400 of the index’s components rose.
Economic data were strong, but stocks were weak for an extended period after the numbers hit the wires. Initial jobless claims for the week came in at 684,000, better than the expected 735,000, and above last week’s reading of 781,000.
“The claims numbers this morning are the latest data points that show the economy is picking up momentum,” Cliff Hodges, chief investment officer of Cornerstone Wealth, wrote in an emailed commentary. But jobless claims didn’t seem to get value stocks going, which were solid in the red even two-and-a-half hours after the data release. “We’re buyers on [market] weakness as the economy gets closer to a full-scale reopening,” Hodges added.
Now on investors’ radar for the next year or so: potential corporate tax hikes to help pay for an infrastructure bill that could total several trillion dollars.
Write to Jacob Sonenshine at email@example.com