The Nasdaq hit a record high close on Monday, becoming the first of the major indexes to confirm a new bull market, and the Dow and S&P 500 jumped as expectations for a swift recovery from a coronavirus-driven downturn increased.
The S&P 500 ended in positive territory for the year to date.
In Canada, the TSX rose 0.70%, with several beaten-down small-cap energy stocks seeing huge jumps after OPEC+ extended its oil output cuts.
A closely watched monthly jobs report on Friday in the U.S. showed an unexpected fall in the unemployment rate, bolstering views that the worst of the economic damage from the virus outbreak was over. Canada that day released a similarly upbeat jobs report relative to the dire expectations of economists.
“It’s optimism surrounding the reopening of the global economy, and the likely confirmation that the U.S. economy will experience a V-shaped recovery in the second half,” said Sam Stovall, chief investment strategist at CFRA Research in New York.
Stocks added to gains late in the session after the U.S. Federal Reserve eased the terms of its “Main Street” lending program to small businesses.
The energy sector climbed the most among the 11 major S&P sectors as major oil producers agreed over the weekend to extend a deal on record output cuts.
Beaten-down shares of cruise operators Carnival Corp and Norwegian Cruise Line Holdings Ltd continued to recover. The S&P 1500 airlines index jumped.
Unofficially, the Dow Jones Industrial Average rose 463.45 points, or 1.71%, to 27,574.43, the S&P 500 gained 38.53 points, or 1.21%, to 3,232.46 and the Nasdaq Composite added 110.66 points, or 1.13%, to 9,924.75.
The S&P/TSX Composite Index closed up 110.46 points at 15,964.53. The real estate sector rose 3.19% and energy gained 2.88%. But that masked some huge gains in smaller-cap oil and gas names that were left for dead by many investors earlier this year. Just Energy rallied 84% to $1.16, Ensign Energy Services gained 52% to $1.40, and Surge Energy gained nearly 40% to 51 cents.
That surge in energy stocks came despite oil falling more than 3% on Monday after OPEC+ nations agreed to extend output cuts, but Saudi Arabia and two other Gulf producers said they would not maintain supplemental reductions that amount to more than a million barrels of daily supply.
Brent crude futures fell $1.50, or 3.6%, to settle at $40.80 a barrel. U.S. West Texas Intermediate crude (WTI), meanwhile, fell $1.36, or 3.4%, to $38.19.
The Organization of the Petroleum Exporting Countries, Russia and other producers agreed in April to cut supply by 9.7 million barrels per day (bpd) in May and June to support prices as coronavirus lockdowns caused demand to collapse.
The group, known as OPEC+, agreed on Saturday to sustain those cuts, equal to about 10% of global supply, through July.
However, Saudi Energy Minister Prince Abdulaziz bin Salman said on Monday that the kingdom and Gulf allies Kuwait and the United Arab Emirates would not continue an additional 1.18 million bpd in reductions.
Nasdaq’s return
The Nasdaq’s 44% climb from its March 23 low stands in contrast to sharp deteriorations in gross domestic product and other economic indicators as a result of nationwide lockdowns, which are now easing.
The index’s 11-week surge has been the largest in that amount of time since late 2001, during the dot-com boom.
Wall Street for months has appeared to ignore grim economic readings as investors focus on trillions of dollars in government stimulus and bet that a recovery would be relatively quick.
Underscoring that disconnect and confirming wide expectations, the private research group that acts as the arbiter for determining U.S. business cycles said on Monday that the U.S. economy ended its longest expansion in history in February, and entered recession as a result of the coronavirus.
The National Bureau of Economic Research said “the unprecedented magnitude of the decline in employment and production, and its broad reach across the entire economy, warrants the designation of this episode as a recession, even if it turns out to be briefer than earlier contractions.”
The S&P 500, the most widely followed U.S. stock index, remains down about 5% from its Feb. 19 record high as uncertainty about the recovery lingers. The Nasdaq’s outperformance highlights investors’ willingness to bet that tech companies will emerge stronger from the pandemic.
Many investors in recent months have bet that massive corporations with robust balance sheets will build on competitive advantages and grab market share from smaller rivals struggling to survive the global health crisis.
Microsoft, Apple and Alphabet have outperformed most stocks within the Nasdaq, while Amazon and Facebook have set record highs in recent weeks.
Since Feb. 19, the end of the previous Nasdaq bull market, Amazon’s stock market value has increased by over $170 billion, far more than any other U.S. company, as investors bet that shopping will move further online and that Amazon’s cloud computing business will grow quickly. Alphabet, still down 6% since Feb. 19, has lost about $25 billion, more than any other U.S. company, according to Refinitiv data. Microsoft and Apple are Wall Street’s most valuable companies.
Due to the cloudy economic outlook, many companies in recent months have withdrawn or declined to provide earnings guidance, making it difficult for investors to value stocks based on future earnings. Still, the Nasdaq now trades at a trailing price/earnings multiple of 31, a level last seen in 2004 in the wake of the bursting of the dot-com bubble.
Investors will turn their focus this week on the Federal Reserve’s two-day policy meeting, ending on Wednesday, where the jobs report will most likely be discussed.
It would be the first meeting since April when Fed Chair Jerome Powell said the U.S. economy could feel the weight of the economic shutdown for more than a year.
Read more: Stocks that saw action Monday - and why
Reuters, Globe staff
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