Stocks had a strong day, with the S&P 500 closing at a record. Oil stocks were the top performers in the index.
Stocks had a strong day after President Joe Biden unveiled details of his infrastructure-spending proposal. However, stocks may have been responding to factors besides the plan.
The Dow Jones Industrial Average rose 171.66 points, or 0.52%, to close at 33,153.21. The S&P 500 soared 46.98 points, or 1.18%, for a record close at 4019.87. The Nasdaq Composite rose 233.23 points, or 1.76% to close at 13,480.11.
The three biggest gainers in the S&P 500 were all energy names: Diamondback Energy (FANG), Marathon Oil (MRO), and Devon Energy (DVN), which saw shares surge up 10.5%, 10.3%, and 7.6%, respectively, as the price of crude oil rose 3.5% to $61.22 a barrel. The Energy Select Sector SPDR ETF (XLE) rose 2.5% after Organization of the Petroleum Exporting Countries, or OPEC, said it would bump output. That adds supply, but the cartel did say the decision comes as it sees strong demand.
Biden unveiled the $2 trillion infrastructure spending bill, under which annual federal spend would equate to roughly $250 billion over eight years. The spend is an economic positive—it creates jobs and could support spending and inflation—but stocks closely tied with the economy weren’t necessarily the brightest shiners Thursday. Value stocks been hot this year, however, pricing in a reheating economy as states reopen and trillions of dollars of fiscal stimulus are already circulating.
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The Industrial Select Sector SPDR ETF (XLI) rose just 0.34%, even as the Institute of Supply Chain Management manufacturing index read 64.7, beating the estimate of 61.7, and hitting its highest level since the mid-1980s, according to data from Wells Fargo economists. The industrial ETF is already up 14% year-to-date, beating the S&P 500’s 7% rise. Even some stocks that benefit the most from the infrastructure plan itself, such as Caterpillar (CAT), which makes heavy machinery used in construction, rose just 0.38% after spending most of the day in the red.
Not even Treasury yields, which typically rise when inflationary developments emerge, gained much traction. The 10-year Treasury yield fell to 1.69%, down from Wednesday’s close at 1.74%. The yield is already up almost twofold from the start of the year. The sliding rate Thursday, though, enabled growth stocks, which are counting on long-term growth and gain significant value when long-duration rates fall, to outperform on the day. The Vanguard S&P 500 Growth Index ETF (VOOG) to rise 1.5%.
“The market reaction is all about yields right now,” wrote Tom Essaye, founder of Sevens Report Research, in a note. Higher rates do detract value for all equities, but more so for growth stocks. A slip, however, can stoke the fires for a day of market gains.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
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April 02, 2021 at 04:00AM
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