U.S. stocks rose on Wednesday as companies that benefit from the economic reopening reversed some of their recent losses.
The Dow Jones Industrial Average rose 515 points, or 1.5%, while the Nasdaq Composite and S&P 500 rose 1.9% and 1.8%, respectively.
The gains follow a Tuesday sell-off on Wall Street over fears about the new omicron Covid variant and the Federal Reserve mulling a quicker-than-planned exit from its easy monetary policy.
Treasury yields also moved notably higher, with the benchmark 10-year Treasury note climbing back toward 1.5% after falling 8 basis points Tuesday to 1.45% on fears that the pandemic would stifle economic growth.
Energy shares posted sharp gains, with Occidental Petroleum and Baker Hughes each rising more than 3% as West Texas Intermediate prices climbed about 4% to nearly $69 a barrel.
Retail and apparel stocks were strong in early trading, with Gap and Ralph Lauren adding more than 3% and PVH gaining nearly 4%. Cruise stocks Carnival and Norwegian also rose about 3%.
The moves came a day after the Dow lost more than 650 points, the S&P 500 shed 1.9% and the tech-focused Nasdaq Composite dipped 1.6%. The small-cap benchmark Russell 2000 tumbled 1.9% as cyclical names dragged on the markets.
“Our sense is that the recent selloff is a longer-term buying opportunity. However, investors that want to avoid a potential big drawdown (while giving up some potential upside) may want to wait until the [Fed’s] Dec. 15 meeting,” Wolfe Research strategist Chris Senyek said in a note to clients.
Fed Chairman Jerome Powell jolted markets after he said the central bank is expected to discuss speeding up the taper of its minimum $120 billion a month bond-buying program. Despite the potential disruption of omicron, the Fed chief said he thinks reducing the pace of monthly bond buys can move quicker than the $15 billion-a-month schedule announced earlier this month.
“At this point, the economy is very strong and inflationary pressures are higher, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases … perhaps a few months sooner,” Powell said. “I expect that we will discuss that at our upcoming meeting.”
Goldman Sachs said it projects the Fed will double the pace to $30 billion a month and enact its first rate hike of the pandemic era in June.
Stocks took a leg higher on Wednesday morning after the November manufacturing report from ISM, which matched expectations and showed a decline in prices paid.
The major averages have seen several volatile sessions, starting last Friday when the Dow Jones Industrial Average experienced its worst day since October 2020. Stocks rebounded on Monday, only to turn downward again on Tuesday.
Wednesday marks the first trading day of the final month of 2021.
Expediting the removal of the Fed’s easy policies tells investors that the central bank is focusing on addressing inflation, instead of new threats from the pandemic.
“Markets appear to be having trouble digesting the combo of elevated uncertainty around the impact of the Omicron variant and a hawkish Fed pivot in the context of persistently elevated inflation,” said Gregory Daco, chief U.S. economist at Oxford Economics.
The new Covid variant, first detected in South Africa, has now been identified in more than a dozen countries, causing many to restrict travel. Denting sentiment on Tuesday, the Moderna CEO told the Financial Times that he expects existing vaccines to be less effective against the new variant.
Stocks wrapped up a volatile month of trading on Tuesday. The Dow lost 3.7% for its second month of losses in three. The S&P 500 fell 0.8%, while the Nasdaq Composite gained 0.25% in November. The Russell 2000 shed 4.3% in November, its worst month since March 2020.
Still, the major averages are up solidly for the year. The Dow is up 12.7% and the S&P 500 is up 21.6% in 2021. The Nasdaq Composite is up an impressive 20.6% this year.
ADP’s private payroll data for November showed 534,000 jobs added in November, above expectations of 506,000
Elsewhere, November’s IHS Markit manufacturing PMI came in at 58.3, lower than expected. October construction spending also rose slower than expected, but there was a positive historical revision to help offset the miss.