Major averages rebounded Tuesday as investors stepped in to buy the dip from the Dow Jones Industrial Average’s worst day in eight months.
The comeback rally gained steam steadily through the session as a bounce in Treasury yields soothed some concerns that a Covid resurgence would slow down the economic recovery. As the 10-year yield bounced back above 1.20%, the run in stocks increased.
At last count, the Dow Jones Industrial Average was up 533 points, or 1.5%, following its 725 point-decline Monday. It was the biggest jump for the Dow in more than a month. The S&P 500 and the Nasdaq Composite added 1.5%. The small-cap benchmark Russell 2000 index jumped 2.7%.
Many of the stocks that were hit the hardest on Monday, on concerns about Covid-19’s delta variant, bounced Tuesday. American Airlines and Delta Air Lines added 5% and 4%, respectively. Royal Caribbean gained 5%, after falling 4% on Monday.
Bank shares are bouncing too as investors continue to monitor bond yields under pressure. JPMorgan and Bank of America are up more than 2%.
Energy and industrial stocks — two of the hardest hit groups from Monday — also snapped back. Exxon Mobil and Chevron rose 1% apiece. General Electric and Honeywell gained more than 3%.
Apple shares have climbed steadily, trading around 2.7% higher and completely erasing their losses from Monday.
Wall Street suffered a sharp sell-off Monday as investors feared that the fast-spreading delta coronavirus variant could hinder the economic recovery. The blue-chip Dow tumbled 2.1% to post its worst day since October 28 of last year. The S&P 500 fell 1.6% and the Nasdaq Composite dropped about 1.1%.
“We remain constructive on equities and see the latest round of growth and slowdown fears premature and overblown,” wrote Dubravko Lakos-Bujas, head of U.S. equity strategy at JPMorgan, in a note Tuesday. The strategist raised his year-end price target for the S&P 500 to 4,600 from 4,400, representing a gain of 8% from Monday’s close.
Traders continue to eye the 10-year Treasury yield, which appeared to be driving the action in the equity markets. It fell to a 5-month low on Monday, heightening concerns about the slowing global economy and helped push equities lower, and briefly sank as low 1.128% early Tuesday before rebounding. It was above 1.78% in March, and its fall amid the recovering economy has mystified and worried investors.
With Tuesday’s rebound, the S&P 500 sits just 2% below its record hit last week. During Monday’s losses, the equity benchmark traded below its 50-day moving average at one point. However, the index managed to close above that key technical level Monday, an optimistic sign for traders that foreshadowed Tuesday’s rebound.
CNBC’s Jim Cramer said the sell-off Monday pushed out some of the speculators taking too much risk in stocks this year and it would end soon.
“Once the speculators are blown out … and the stocks that are already down huge start rallying, then we can find a tradeable bottom,” Cramer said. “We’re close, but the speculators haven’t been fully crushed yet.”
Bitcoin fell below the $30,000 level overnight, triggering selling across cryptocurrencies and another sign that speculation may be coming out of the markets.
New Covid cases are rebounding in the U.S. as the delta variant spreads, largely among the unvaccinated. The U.S. is averaging about 26,000 daily cases in the last seven days, more than double the average from a month ago, according to CDC data.
“Many of the cyclical companies are selling off on fears that Covid will stop the recovery in its tracks,” said Chris Zaccarelli, CIO at Independent Advisor Alliance. “We don’t believe that that’s the case and are willing to let the sell-off run its course and buy the dip on the belief that the economy will fully recover and return to its prior growth trajectory, bringing most of the cyclical companies in the airline, travel and leisure industries along with it.”