Wall Street tilts higher again on economic recovery hopes

Wall Street’s rally is spilling into a new week as most stocks continue to ride the high supplied by Friday’s surprisingly encouraging report on the U.S. jobs market.

The S&P 500 was up 0.5% in midday trading on Monday, bringing it back within 5.3% of its record set in February, as optimism strengthens that the worst of the coronavirus-induced recession may have already passed. Stocks that would benefit most from an economy that’s growing again were rising the most, but pullbacks for a handful of big tech stalwarts were keeping the market’s overall gains in check.

The Dow Jones Industrial Average was up 248 points, or 0.9%, at 27,359, as of 11:53 a.m. Eastern time, and the Nasdaq composite was up 0.2%.

Stocks have been rising since late March, at first on relief after the Federal Reserve and Capitol Hill pledged to support the economy and more recently on hopes that the recovery may happen more quickly than forecast.

Such hopes got a huge boost Friday when the U.S. government said that employers added 2.5 million jobs to their payrolls last month. Economists were expecting to see 8 million more lost.

States across the country are slowly relaxing restrictions on businesses meant to slow the spread of the coronavirus outbreak, which is raising expectations that the economy can pull out of its coma. New York City began reopening on Monday, for example, allowing construction and “nonessential” retailers to start operating again with some restrictions.

That puts more pressure on economic reports this week to confirm that Friday’s jobs report was a true inflection point and not just an aberration.

Even if the economy did hit its bottom a month or two, economists warn that many risks are still looming over a very long road back to full recovery, such as a flareup in U.S.-China tensions. Critics are also still saying the stock market may have risen too quickly and may be setting investors up for disappointment, with the biggest risk being another wave of infections that leads to more lockdowns.

It’s still unclear whether the economy can recover anywhere near as quickly as the stock market, which has rallied sharply after earlier being down nearly 34% from its February record.

“There’s a lot of risk that businesses and the economy don’t recover as fast,” said Tom Martin, senior portfolio manager at Globalt Investments. “When money starts running out in July, are we enough on a path to getting people employed and businesses open?”

Among this week’s economic highlights are reports on inflation and the number of workers applying for jobless benefits. The headliner, though, is likely the Federal Reserve’s meeting on interest rates in the middle of the week.

The Fed has already promised unprecedented amounts of support to keep markets running smoothly, but will the recent upturn in job growth mean it will pull back at all?

Treasury yields have been climbing in recent days, reflecting rising expectations in the market for the economy and inflation. The 10-year Treasury yield dipped to 0.86% from 0.90% late Friday, but it’s up sharply from 0.66% a week earlier.

Too quick a rise in yields could slow spending and the anticipated economic recovery, though. It can also be a heavy weight on the stock market.

Higher yields make bonds more attractive as investments, which would pull some investors’ dollars away from stocks. High-dividend stocks would likely get hurt in particular, because some income investors had turned to them instead of bonds when yields were lower.

Stocks that would benefit most from a growing economy, meanwhile, were leading the market on Monday to continue their recent trend.

Energy producers, banks and industrial companies were leading the S&P 500, and more than 70% of the stocks in the index were higher.

Travel-related stocks were again notable standouts as investors raised expectations for a reopening economy. Norwegian Cruise Line, Carnival, Alaska Air Group and United Airlines all rose more than 8.5%.

Smaller company stocks also climbed more than the rest of the market, which often happens when expectations for the economy are rising. The Russell 2000 index of small-cap stocks was up 1.4%.

But several titans were giving back a portion of their gains made earlier this year, when investors were piling into the few companies that could hold up in a weak, stay-at-home economy. Microsoft slipped 0.4%, Apple slipped 0.3% and Netflix lost 2.1%. These are some of the biggest companies in the market, which gives their movements more sway over the S&P 500 and other indexes.

In global markets, Japan’s Nikkei 225 index jumped 1.4% after the government reported the economy contracted at a 2.2% annual rate in the January-March quarter, better than the initially estimated minus 3.4%.

Indexes in other countries were more subdued. The Kospi in South Korea was up 0.1%, while the Hang Seng in Hong Kong was virtually flat.

France’s CAC 40 was down 0.4%, Germany’s DAX lost 0.2% and the FTSE 100 in London was down 0.2%.

Oil was down, even after major oil producing nations agreed over the weekend to extend a production cut of nearly 10 million barrels of oil a day through the end of July to counter the blow to demand from the coronavirus pandemic.

Oil had already climbed last week on anticipation of the move, and OPEC officials did not commit to extending the cuts past July or establishing a way to enforce the production limits.

U.S. crude for July delivery fell 3.6% to $38.13 per barrel. Brent crude, the international standard, fell 3.3% to $40.90 per barrel.