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Dec. 7, 2021, 4:44 p.m. EST

Dow jumps almost 500 points, Nasdaq rallies 3% to end higher Tuesday as omicron fears fade

By Christine Idzelis and Mark DeCambre

U.S. stock benchmarks closed higher Tuesday, with a surge extending Monday’s sharp gains, as Wall Street focused on early reports that the omicron variant of coronavirus that causes COVID-19 is less severe than originally feared.

How did stock indexes trade?

  • The Dow Jones Industrial Average (DOW:DJIA) rose 492.4 points, or 1.4%, to 35,719.43, powered by gains in Goldman Sachs Group Inc . (NYS:GS) , salesforce.com Inc . (NYS:CRM) , and Microsoft Corp . (NAS:MSFT)

  • The S&P 500 index (S&P:SPX) advanced 95.08 points, or 2.1%, to 4,686.75, with the tech, consumer discretionary and energy sectors leading the rally.

  • The Nasdaq Composite Index (NASDAQ:COMP) jumped 461.76 points, or 3%, to 15,686.92.

On Monday, the Dow industrials surged 657 points, or 1.9%, to 35227. The S&P 500 rose 53 points, or 1.2%, to 4592 to get back to its 50-day moving average and the Nasdaq Composite added 140 points, or 0.9%, to 15225.

What drove markets?

Animal spirits took hold on Wall Street, with a brisk rebound under way in stocks as investors sought bargains out of the wreckage of the past few weeks.

It is “a snapback trade,” said Yung-Yu Ma, chief Investment strategist at BMO Wealth Management, in a phone interview Tuesday. A lot of the fear over the omicron variant of the coronavirus is waning and investors see in recent data that “there is still a lot of economic momentum” in the U.S., he said.

Rallies in energy and information technology, areas of the market that have seemed the most beaten down of late, helped propel U.S. stocks higher. The S&P 500’s information technology sector (S&P:XX:SP500EW.45) jumped 3.5% Tuesday to close at a record high, according to Dow Jones Market Data. The energy sector (S&P:XX:SP500.10) rose about 2.3%, according to FactSet.

“We like energy a lot,” said Anne Wickland, a portfolio manager at Easterly Investment Partners, in a phone interview Tuesday. Oil companies are in good shape in terms of their cash flows and balance sheets, she said, after being “so much more disciplined over the last couple years.”

Investors continue to take the view expressed by Dr. Anthony Fauci, President Biden’s chief medical adviser, that early indications point to omicron being less dangerous than the delta variant.

“We have conviction that the bull market will extend and that stocks remain attractive on a relative basis,” wrote Keith Lerner, chief market strategist for Truist Advisory Services, in a report dated Tuesday.

“We are realistic that returns are likely to be much more modest on the heels of the strongest start to a bull market in history and expect more normal pullbacks relative to the unusually shallow setbacks of the past year,” the strategist wrote.

Further good news on the virus came as GlaxoSmithKline (NYS:GSK) said Tuesday that new preclinical studies demonstrated that its sotrovimab antibody retains activity against the omicron variant.

“Part of the recovery is no doubt due to growing optimism about the omicron variant, which may be extremely contagious but doesn’t seem to be extremely dangerous,” said Marshall Gittler, head of investment research at BDSwiss Holding.

Also buoying sentiment was China’s decision on Monday to lower reserve requirements for banks as it moved to stimulate a slowing economy that has been weighed down by a slump in the property market.

Geopolitical risks remain a concern though given Russia’s buildup of troops along the border of Ukraine. Biden held a video call on Tuesday with Russian President Vladimir Putin.

In economic reports, the U.S. trade deficit sank almost 18% in October after the biggest surge in exports in 13 years and a slowdown in imports partly tied to congestion at domestic ports. The trade gap shrank to $67.1 billion from a record $81.4 billion in the prior month,  the government said Tuesday.  Economists polled by The Wall Street Journal had forecast a $67 billion deficit.

Meanwhile, U.S. exports climbed 8.1% to an all-time high of $223.6 billion. It is the biggest monthly increase since 2008. Imports edged up less than 1% to $290.7 billion, but that is still a record high.

Separately, an updated reading on productivity costs showed that third-quarter productivity costs declined 5.2%, instead of an earlier estimate for a 5% drop.

Which companies were in focus?

  • Intel Corp. INTC shares rose 3.1% on a plan to list shares in its Mobileye self-driving-car unit.

  • Shares of American Airlines Group IncAAL slipped 0.2%, after the air carrier said Chief Executive Doug Parker will retire , effective March 31, 2022, after about nine years in the role. 

How did other assets fare?

  • The yield on the 10-year Treasury note  BX:TMUBMUSD10Y  rose 4.6 points to about 1.479% Tuesday. Treasury yields and prices move in opposite directions.

  • The ICE U.S. Dollar Index  DXY , a measure of the currency against a half-dozen other monetary units, was flat.

  • In oil futures, West Texas Intermediate crude  CL00  for January delivery  CLF22  rose 3.7% to settle at $72.05 a barrel, after climbing nearly 5% on Monday.

  • Gold futures  GC00  for February delivery  GCG22 edged up 0.3% to settle at $1,784.70 an ounce.

  • The Stoxx Europe 600 Index  SXXP  rose about 2.4% Tuesday, while London’s FTSE 100 Index  UKX  climbed 1.5%, after putting in its largest one-day point gain on Monday since July 21.

  • In Asia, the Shanghai Composite Index  SHCOMP  closed 0.2% higher, while the Hang Seng Index  HSI  rose 2.7% in Hong Kong and China’s CSI 300 (CHINA:XX:000300) advanced 0.6%. Japan’s Nikkei 225 Index  NIK  rose 1.9%.

—Steve Goldstein contributed to this article.

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