U.S. Stocks Rally As Treasury Yields Pull Back Off Highs

After recovering from the sell-off seen early in the previous session, stocks continued to advance over the course of the trading day on Wednesday. With the upward move, the Dow ended the session at a new record closing high.

The Dow soared 424.51 points or 1.4 percent to 31,961.86 and the S&P 500 jumped 44.06 points or 1.1 percent to 3,925.43. The tech-heavy Nasdaq also surged up 132.77 points or 1 percent to 13,597.97 after tumbling by nearly 180 points in early trading.

The rally that emerged on Wall Street came as bond yields gave back ground after moving significantly higher early in the session.

The yields on ten-year notes and thirty-year bonds reached their highest intraday levels in a year before pulling back as the day progressed.

The pullback by yields followed Federal Reserve Chair Jerome Powell once again reiterating that the Fed is likely to maintain its ultra-easy monetary policy for the foreseeable future.

Powell testified before House Financial Services Committee, with his prepared remarks mirroring those he delivered before the Senate Banking Committee on Tuesday.

The Fed chief also continued to downplay the risks of inflation, which have recently spooked investors and driven treasury yields to their highest levels since the early days of the coronavirus pandemic.

News FDA staff have endorsed Johnson & Johnson’s (JNJ) Covid-19 vaccine for emergency use may also have contributed to the strength on Wall Street, with the move paving the way for final approval of the new single-dose vaccine.

On the U.S. economic front, data released by the Commerce Department showed a much bigger than expected jump in new home sales in the U.S. in the month of January.

The Commerce Department said new home sales spiked by 4.3 percent to an annual rate of 923,000 in January after soaring by 5.5 percent to a revised rate of 885,000 in December.

Economists had expected new home sales to surge up by 1.5 percent to a rate of 855,000 from the 842,000 originally reported for the previous month.

Sector News

Energy stocks moved sharply higher over the course of the trading session, benefiting from a substantial increase by the price of crude oil.

Crude for April delivery jumped $1.55 to one-year closing high of $63.22 a barrel despite the release of a report showing an unexpected weekly increase in U.S. crude oil inventories.

Reflecting the strength in the energy sector, the Philadelphia Oil Service Index skyrocketed by 6.6 percent and the NYSE Arca Oil Index soared by 3.1 percent. Both indexes ended the day at their best closing levels in a year.

Significant strength was also visible among semiconductor stocks, as reflected by the 3.2 percent spike by the Philadelphia Semiconductor Index.

Airline stocks also saw considerable strength on the day, with the NYSE Arca Airline Index soaring by 2.9 percent to its best closing level in a year.

Banking, steel and housing stocks also moved notably higher on the day, while utilities stocks were among the few groups to buck the uptrend.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved sharply lower during trading on Wednesday. Japan’s Nikkei 225 Index tumbled by 1.6 percent, while Hong Kong’s Hang Seng Index plunged by 3 percent.

Meanwhile, the major European markets moved to the upside on the day. While the German DAX Index advanced by 0.8 percent, the U.K.’s FTSE 100 Index climbed by 0.5 percent and the French CAC 40 Index rose by 0.3 percent.

In the bond market, treasuries climbed well off their worst levels of the day but still closed lower. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 2.7 basis points to 1.389 percent, its highest closing level in a year.

Looking Ahead

A batch of economic day may attract attention on Thursday, with traders likely to keep an eye on reports on initial jobless claims, durable goods orders and pending home sales.