U.S. stock indexes closed near session highs Tuesday, after Federal Reserve Gov. Lael Brainard called for sustained large-scale asset purchases by the U.S. central bank to help the economy rebound amid a “thick fog of uncertainty” brought on by COVID-19.
Investors also monitored fresh corporate earnings, efforts by some U.S. states to close down businesses again with coronavirus cases rising, and deteriorating U.S.-China relations.
How did major indexes fare?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -1.58% gained 556.79 points, or 2.1%, to end at 26,642.59, while the S&P 500 /zigman2/quotes/210599714/realtime SPX -1.31% tacked on 42.30 points to finish at 3,197.52, a gain of 1.3%, as energy shares and materials shares rallied. The Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP -0.92% advanced 97.73 points, or 0.9%, to settle at 10,488.58, after trading negative earlier in the session.
What drove the market?
Stocks marched steadily higher on Tuesday after Brainard said the U.S. central bank should use large-scale asset purchases for a “sustained” period to help the economy rebound amid a “thick fog of uncertainty” brought on by COVID-19.
Brainard also warned that the U.S. economic recovery likely “will face headwinds for some time,” and require further accommodation, while speaking during a virtual event hosted by the National Association for Business Economics.
St. Louis Fed president James Bullard on Tuesday struck a more upbeat tone on the economic outlook, saying that the unemployment rate could drop sharply in the next six months, if “we play our cards right” and if many workers subject to temporary layoffs end up being recalled.
Bullard also said that optimism around stocks, so far, has proven right. “Equity markets are something we don’t usually talk about at the Fed,” he said. “I think they have been optimistic and they have been right, I think, up to now anyway.”
Expectations for continued Fed support, including through ultra-low rates that can weigh on bank earnings, through the pandemic has been a key focus among investors willing to buy U.S. stocks are higher prices.
Some of the nation’s largest banks on Tuesday also reported results, offering more insights into the outlook for the domestic economy that has been ravaged by the coronavirus pandemic.
Banking giant JPMorgan Chase & Co. /zigman2/quotes/205971034/composite JPM -2.53% , saw earnings fall sharply, even if they topped expectations. Wells Fargo & Co. /zigman2/quotes/203790192/composite WFC -2.43% , saw its shares punished after reporting a deeper-than-expected loss, and Citigroup Inc. /zigman2/quotes/207741460/composite C -1.82% shares also lost ground even as its earnings topped expectations.
Bank earnings reports come amid concerns that stocks may have rallied too far off the March lows, particularly as parts of the world clamp back down on business activities and social gatherings.
California Gov. Gavin Newsom on Monday ordered a rollback of indoor operations of restaurants, as well as bars, zoos, wineries, museums, and movie theaters, igniting fresh worries that the COVID-19 pandemic recovery may take longer than the rebound in equities imply.
Steven Ricchiuto, U.S. chief economist at Mizuho Securities, said his team expects “the recovery to take a full year, not six months,” in a note Tuesday afternoon. “This consideration is an important driver behind our call that the equity markets will track sideways within recent ranges through the summer months instead of climbing higher.”
Any recent selloffs, such as Monday’s late downside reversal, have been short lived, said Sahak Manuelian, a managing director of equity trading at Wedbush Securities in Los Angeles. “A lot of people think markets are ahead of themselves, ahead of the economy, but it just doesn’t seem to matter so long as we have so much fiscal and monetary stimulus,” he told MarketWatch.