May 16, 2021

Stocks and Bonds: Markets Jump in U.S. and Europe on Hopeful Signs

Analysts said the markets were helped by a successful auction of three-month bills in Spain. Also, a report showing improved business sentiment in Germany, Europe’s largest economy, offered a glimmer of hope.

The Dow Jones industrial average turned positive for the month and bank shares were up more than 3 percent. Over all, it was a reversal of the drag on the entire stock market on Monday, when financial stocks fell by more than 2 percent, partly as focus shifted to a warning by the European Central Bank of a perilous year ahead.

But with no stunning news event or resolution to the financial markets’ persistent irritants, some questioned the reasons behind the size of the surge on Tuesday.

“I cannot explain today’s action in the market,” Gary M. Flam, an equity portfolio manager at Bel Air Investment Advisors, said in the final hour of trading. “There has been no news, either positive or negative, to drive a move of this magnitude. I could try to explain it away, but a move of this magnitude is head-scratching.”

At the close, the Dow Jones industrial average was up 337.32 points, or 2.9 percent, at 12,103.58. The Standard Poor’s 500-stock index showed a gain of nearly 3 percent to 1,241.30. The index’s 35.95 point gain was the seventh-best of this year. The Nasdaq composite index was up 80.59 points, or 3.2 percent, at 2,603.73.

As stocks soared, investors left the safety of government bonds. The Treasury’s 10-year note tumbled 1 2/32, to 100 21/32. The yield rose to 1.93 percent, from 1.81 percent late Monday.

Many analysts also noted that wild swings were a predictable feature of the end of the year as managers balanced underperforming elements in their portfolios at a time of low trading volume. And even after an impasse over extending a payroll tax cut was announced Tuesday in Washington, the markets held on to their gains.

“The market just seems to have no memory from one day to the next,” Mr. Flam said. “To drive a move of this magnitude, you would expect there to be some sort of resolution on the bigger-picture issues.”

The sovereign debt crisis in the euro zone and the prospects of sluggish economic growth have ganged up on the financial markets in recent months. But the data has sometimes broken through the gloom, pointing to a recovery that is sluggish but at least is not stalled.

On Tuesday in the United States, government data showed that housing starts in November hit their highest level since April 2010. They reached 685,000, a seasonally adjusted annualized pace surpassing forecasts of 635,000 and up more than 9 percent compared with October. Building permits also exceeded expectations, reaching 681,000, data from the Commerce Department showed.

And a survey released on Tuesday by the Ifo research group in Munich showed that the business climate for trade and industry in Germany, which is Europe’s largest economy, continued to improve in December. “The German economy seems to be successfully countering the downturn in Western Europe,” the report said.

Stanley Nabi, the chief strategist for the Silvercrest Asset Management Group, said that the economic reports in the United States and from Europe showed they were “not doing as badly as expected, and this morning the housing data came out much stronger than expected.”

In addition to recent higher expectations for growth, he said, “all of these things combined have given a measure of comfort” to investors.

The Euro Stoxx 50 index closed 2.7 percent higher. The major indexes were up 3.1 percent in Germany, 2.7 percent in France and 1 percent in Britain. The German 10-year bond rose 8 basis points to yield 1.95 percent.

In the euro zone bond market, where sovereign debt concerns have been overriding, the Spanish auction of three-month bills priced to yield 1.74 percent helped sentiment, an analyst said.

“We are still a long way from a fix to Europe’s problems, but any ease in funding pressures among member economies is certainly a welcomed development,” said Kevin H. Giddis, the executive managing director and president for fixed-income capital markets at Morgan Keegan Company, referring specifically to Spain.

As the euro rose and the United States dollar retreated about 0.5 percent on its index, energy and materials stocks on the broader market surged nearly 4 percent. Oil prices rose more than 3.5 percent, with crude for January delivery on the New York Mercantile Exchange at $97.35.

Bank of America shares, which closed below $5 on Monday, their lowest point since March 2009, were up 3.7 percent Tuesday at $5.17.

ATT was up more than 1.3 percent to $29.12. It announced after the markets closed on Monday that it would end its bid to acquire T-Mobile USA.

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