Investors took a break from selling in May and going away, for one day at least.
Stocks soared Monday, as positive news about earnings from banking powerhouse JPMorgan Chase and comments from President Joe Biden about the possibility of lifting some US tariffs on China boosted sentiment on Wall Street.
The Dow gained nearly 620 points Monday, a gain of about 2%. Dow component JPMorgan Chase (JPM) surged 6% after the Wall Street giant raised its outlook for interest income, a key measure of profitability.
Fellow financials Goldman Sachs (GS), American Express (AXP) and Visa (V) were among the other big winners in the Dow Monday. The S&P 500 rose 1.9%. JPMorgan Chase was one of the best performers in that blue-chip index too. Citigroup (C), Bank of America (BAC), Wells Fargo (WFC) and Comerica (CMA) were also S&P 500 leaders.
Banks have been market losers so far this year, even though many financials should benefit from the fact that the Federal Reserve is raising interest rates. Higher rates should boost lending profits, but investors seem more worried about surging inflation and rate hikes eventually leading to a slowdown in the housing market and broader economy.
The strong outlook from JPMorgan Chase may temporarily put some of those fears to rest.
Mahmood Noorani, co-founder and CEO at Quant Insight, said many financial stocks were oversold and had become cheap. The Financial Select Sector SPDR ETF (XLF), which owns most of the top banks, surged more than 3% Monday.
But Noorani added that the broader market may not rebound for good until there is “more visibility” about how fast the Fed is going to raise rates and when the hiking cycle will end.
“All measures of uncertainty will remain elevated. At the moment the Fed tells us it’s done, the sell-off will reverse,” he said.
The tech-heavy Nasdaq index was up 1.6% Monday. Talk from Biden about possibly rolling back tariffs on Chinese imports would be good news for the tech sector, which does a lot of business in China.
Shares of Apple (AAPL) and Microsoft (MSFT) were also among the leaders in the Dow, as were industrial giants Caterpillar (CAT) and Boeing (BA), which also generate a solid chunk of sales from China.
Biden’s comments were cheered by investors, even though he also warned about possible military action against China if it attacked Taiwan. Biden has continued to talk tough about China, but he has also suggested that he’s willing to reconsider some of the restrictions put in place by the Trump administration.
Treasury Secretary Janet Yellen also said last week that she’s concerned about the impact that the tariffs are having on American consumers and businesses. The trade skirmish with China may be partly to blame for supply chain disruptions and high inflation.
But it will take more than a one day rally for the mood on Wall Street to really improve. The CNN Business Fear & Greed Index, which measures seven gauges of investor sentiment, remains at Extreme Fear levels.
Stocks are also still down sharply for the month of May and all of 2022. The S&P 500 is not far from bear market territory, having plunged about 17% this year. The Nasdaq is already in a bear market, having plummeted more than 26% so far in 2022. The Dow is down 12% this year.