U.S. Stocks Rally Along With Global Markets as Brexit Worries Ease
Fears that last week’s U.K. vote could disrupt the world economy seem to have receded.
Two of the best days for stocks this year helped undo two of the worst, turning major U.S. indexes positive for 2016.
U.S. stocks rallied as worries about the U.K.’s vote to leave the European Union appeared to ease. The Dow Jones Industrial Average rose 1.6%, the S&P 500 gained 1.7% and the Nasdaq Composite rose 1.9%.
Traders described a sense of equilibrium returning to the market. While gains in the previous session appeared to be driven predominantly by short-covering, Wednesday’s rally appeared to have been lent some momentum by new buyers entering the fray, said Michael Antonelli, equity sales trader at Robert W. Baird.
“There’s a whole lot of short-covering, but short-covering is never enough by itself to drive a rally, especially a two-day rally,” Mr. Antonelli said.
Global shares and sterling had initially plunged after Thursday’s Brexit vote, as investors feared that the U.K.’s departure from the EU would slow global economic growth and extend the period of low interest rates.
But markets are showing signs of stemming those losses.
U.S. crude oil soared 4.2% to $49.88 a barrel, its fifth-highest settlement this year, on a weakening dollar and tightening U.S. stockpiles. Shares of energy companies in the S&P 500 advanced.
Financial stocks in the S&P 500, which fell almost 10% in the two sessions after the U.K. referendum results were released, rose.
“For the most part, we’d generally seen a good amount of selling in financials up until even yesterday morning,” said R.J. Grant, associate director of equity trading at Keefe, Bruyette & Woods. “There’s probably a good bit of surprise from folks seeing such a powerful bounceback.”
Investors are gauging the risks from Brexit to be lower than during the Lehman Brothers bankruptcy that unleashed the financial crisis in 2008 and during the height of the European debt crisis, said Andrew Sheets, chief cross-asset strategist at Morgan Stanley.
“People are starting to take stock that this is more country specific and is not affecting markets everywhere,” he said. “So far, it doesn’t appear to be a big risk to global growth.”
“If anything, what’s surprising about the market reaction is how mild it’s been,” said Jason Thomas, chief investment officer of Savos Investments, a division of financial services firm AssetMark.
The yield on the 10-year U.S. Treasury note was 1.476%, according to Tradeweb. The yield was 1.463% Tuesday, its second-lowest closing level of the year.
Some investors said they are betting that the impact of the U.K. vote will be limited, especially if economic data from the U.S. and China show growth. U.S. consumer spending picked up in May from a month earlier, the Commerce Department said Wednesday.
“Of course, the volatility out of Europe makes us worried, but so far the real economic impact is difficult to gauge,” said Mike Baele, senior portfolio manager at U.S. Bank Wealth Management, which oversees $133 billion in assets.
In Europe, shares rose across the board, with the Stoxx Europe 600 advancing 3.1% and France’s CAC 40 rising 2.6%. London’s FTSE 100, made up of companies that earn three-quarters of their revenues outside the U.K., gained 3.6%, erasing all its post-Brexit losses. The more U.K.-focused FTSE 250 also rallied, climbing 3.2%.
The pound, which had fallen to a 31-year low against the dollar Monday, was up 0.6% at $1.3431. The euro edged up 0.3% against the dollar to $1.1107. The WSJ Dollar Index, which measures the U.S. unit against a basket of other currencies, was down roughly 0.5%.
Many investors now expect major central banks to act to counter a potential drag on the global economy after the Brexit vote, with some predicting rate cuts from the Bank of England and further stimulus from the European Central Bank. Some also expect the Brexit vote to derail the U.S. Federal Reserve’s plans to raise interest rates this year.
Japanese Prime Minister Shinzo Abe told his finance minister and the central bank chief to take any “necessary measures” to support the economy and financial markets, signaling his vigilance over the yen’s resurgence following the U.K. vote.
Asian markets rallied Wednesday, with Japan’s Nikkei Stock Average rising 1.6% and Hong Kong’s Hang Seng Index adding 1.3%
Fears that last week’s U.K. vote could disrupt the world economy seem to have receded.
Two of the best days for stocks this year helped undo two of the worst, turning major U.S. indexes positive for 2016.
U.S. stocks rallied as worries about the U.K.’s vote to leave the European Union appeared to ease. The Dow Jones Industrial Average rose 1.6%, the S&P 500 gained 1.7% and the Nasdaq Composite rose 1.9%.
Traders described a sense of equilibrium returning to the market. While gains in the previous session appeared to be driven predominantly by short-covering, Wednesday’s rally appeared to have been lent some momentum by new buyers entering the fray, said Michael Antonelli, equity sales trader at Robert W. Baird.
“There’s a whole lot of short-covering, but short-covering is never enough by itself to drive a rally, especially a two-day rally,” Mr. Antonelli said.
Global shares and sterling had initially plunged after Thursday’s Brexit vote, as investors feared that the U.K.’s departure from the EU would slow global economic growth and extend the period of low interest rates.
But markets are showing signs of stemming those losses.
U.S. crude oil soared 4.2% to $49.88 a barrel, its fifth-highest settlement this year, on a weakening dollar and tightening U.S. stockpiles. Shares of energy companies in the S&P 500 advanced.
Financial stocks in the S&P 500, which fell almost 10% in the two sessions after the U.K. referendum results were released, rose.
“For the most part, we’d generally seen a good amount of selling in financials up until even yesterday morning,” said R.J. Grant, associate director of equity trading at Keefe, Bruyette & Woods. “There’s probably a good bit of surprise from folks seeing such a powerful bounceback.”
Investors are gauging the risks from Brexit to be lower than during the Lehman Brothers bankruptcy that unleashed the financial crisis in 2008 and during the height of the European debt crisis, said Andrew Sheets, chief cross-asset strategist at Morgan Stanley.
“People are starting to take stock that this is more country specific and is not affecting markets everywhere,” he said. “So far, it doesn’t appear to be a big risk to global growth.”
“If anything, what’s surprising about the market reaction is how mild it’s been,” said Jason Thomas, chief investment officer of Savos Investments, a division of financial services firm AssetMark.
The yield on the 10-year U.S. Treasury note was 1.476%, according to Tradeweb. The yield was 1.463% Tuesday, its second-lowest closing level of the year.
Some investors said they are betting that the impact of the U.K. vote will be limited, especially if economic data from the U.S. and China show growth. U.S. consumer spending picked up in May from a month earlier, the Commerce Department said Wednesday.
“Of course, the volatility out of Europe makes us worried, but so far the real economic impact is difficult to gauge,” said Mike Baele, senior portfolio manager at U.S. Bank Wealth Management, which oversees $133 billion in assets.
In Europe, shares rose across the board, with the Stoxx Europe 600 advancing 3.1% and France’s CAC 40 rising 2.6%. London’s FTSE 100, made up of companies that earn three-quarters of their revenues outside the U.K., gained 3.6%, erasing all its post-Brexit losses. The more U.K.-focused FTSE 250 also rallied, climbing 3.2%.
The pound, which had fallen to a 31-year low against the dollar Monday, was up 0.6% at $1.3431. The euro edged up 0.3% against the dollar to $1.1107. The WSJ Dollar Index, which measures the U.S. unit against a basket of other currencies, was down roughly 0.5%.
Many investors now expect major central banks to act to counter a potential drag on the global economy after the Brexit vote, with some predicting rate cuts from the Bank of England and further stimulus from the European Central Bank. Some also expect the Brexit vote to derail the U.S. Federal Reserve’s plans to raise interest rates this year.
Japanese Prime Minister Shinzo Abe told his finance minister and the central bank chief to take any “necessary measures” to support the economy and financial markets, signaling his vigilance over the yen’s resurgence following the U.K. vote.
Asian markets rallied Wednesday, with Japan’s Nikkei Stock Average rising 1.6% and Hong Kong’s Hang Seng Index adding 1.3%
