Stocks Bounce Back Amid Signs of Economic Recovery -- Update

By Caitlin Ostroff and Michael Wursthorn

U.S. stocks rose Thursday afternoon, averting a third consecutive day of declines, as the economic picture continued to brighten.

The broad S&P 500 index fell as much as nearly 1% earlier in the session before recouping all of that and more, rising 20.38 points, or 0.5%, to 3909.52. Stocks closely tied to an economic recovery led the rebound while shares of technology and other high-growth companies narrowed some of their losses. These moves helped the S&P 500, as well as the Dow industrials and the Nasdaq Composite, avoid another session of losses.

Thursday's give-and-take was the latest episode in a volatile stretch of trading over the last month that has sapped major indexes of most of their gains from earlier this year and left the Nasdaq Composite mostly flat since the end of December.

Signs of a resurgent economy, rising interest rates and nascent inflation have spurred a massive rotation into so-called value stocks that benefit from an economic rebound -- such as manufacturers, banks and retailers. Meanwhile, investors have been pulling money out of tech companies, viewing those high-price stocks as particularly vulnerable to the shifting economic winds.

Much of that narrative hasn't changed despite the gains major indexes scored on Thursday, analysts said, adding that investors should brace for more topsy-turvy sessions.

"We're going to be looking for a new narrative," Daniel Morris, chief market strategist at BNP Paribas Asset Management, adding that markets will be flat meanwhile. "Growth could recover, value could wait, and then on the surface nothing happens. I have modest expectations for the market until we get a sense of what the next catalyst is."

Similar to the S&P 500, the Dow Jones Industrial Average turned around to add 199.42 points, or 0.6%, to 32619.48. The Nasdaq Composite rose 15.79 points, or 0.1%, to 12977.68, lagging on account of the weakness among shares of some tech companies.

Optimism regarding the economic rebound strengthened Thursday after new data showed a continued recovery in the labor market.

The number of Americans applying for first-time unemployment benefits dropped to 684,000, down from 781,000 in the prior week and falling to the lowest level since the pandemic disrupted the economy, highlighting how portions of the labor market continues to recover as Covid-19 vaccines roll out.

Federal Reserve Chairman Jerome Powell added to the idea of a recovering economy. Speaking on NPR Thursday morning, Mr. Powell said the central bank would gradually roll back the amount of Treasurys and mortgage-backed securities that had been bought by the Fed. He added that such a move would only come once the economy has all but fully recovered, but investors reacted immediately, sending stock futures lower ahead of the market's open.

Meanwhile, President Joe Biden declared on Thursday afternoon a goal of giving 200 million Americans vaccines by the end of his first 100 days in office, doubling his previous target.

"Based on our outlook for a strengthening economic recovery, we have been favorable on the cyclical financials, industrials and materials sectors," Wells Fargo Investment Institute strategists said in a recent note, adding that the cyclical rally is likely to continue throughout much of the year.

Value stocks as measured by the Russell 2000 Value index rose 2.7% Thursday, extending their gain so far this quarter to 19%. A similar index of growth stocks added 1.8% Thursday and 2.7% for the quarter, lagging behind the S&P 500's 4.1% gain since the end of December.

Looking more closely, shares of industrial, material and financial companies rose at least 1.4% each. Tech and communication stocks fell 0.1% and 0.3%, respectively.

Not helping tech stocks was a congressional hearing on online disinformation. The chief executives of Facebook, Twitter and Alphabet appeared before a House panel Thursday to face questions from lawmakers on their companies' roles in the discord that led up to and has followed the Jan. 6 Capitol riot, among other matters.

Shares of those three companies were mostly in the red ahead of the hearings. By the close, Alphabet shares were flat, while Facebook shed $3.40, or 1.2%, to $278.74, and Twitter declined 86 cents, or 1.4%, to $61.20.

Overseas, the Stoxx Europe 600 closed little changed. In Asia, most major benchmarks closed higher. Japan's Nikkei 225 rallied 1.1% and South Korea's Kospi added 0.4%. China's Shanghai Composite Index edged down 0.1%

Write to Caitlin Ostroff at [e-mail] and Michael Wursthorn at [e-mail]

(END) Dow Jones Newswires

03-25-21 1748ET