Wall Street’s S&P 500 rallies in the wake of European bourses as investors weighed polls showing robust industrial gains in the US and the eurozone, as well as a blockbuster corporate reporting season.
The benchmark S&P 500 was up 0.4% by midday in New York, while the Dow Jones Industrial Average was up 0.8%. Meanwhile, the high-tech Nasdaq shed 0.4% due to the downturn in tech and life science companies.
Both the Nasdaq and the S&P 500 blue-chip index hit highs last week.
A study by the Institute for Supply Management showed that activity in the US manufacturing sector continued to skyrocket in April, despite the fact that the pace of growth slowed significantly from the previous month.
Last month, the figure stood at 60.7 from a 37-year high of 64.7 in March, bringing it well above the 50 mark separating expansion from contraction. The April data fell short of the Wall Street consensus of 65, but showed that “sector activity is still growing at a strong pace,” according to Thomas Simons, an economist at Jefferies.
US government debt rallied slightly after ISM data was below estimates, causing the yield on 10-year Treasuries to decline 0.02 percentage points to just above 1.6 percent.
“While the manufacturing sector is not expected to be the main driver of hiring in this next phase of the recovery, the perception that growth in commodity production may have reached a hasty rate is of little concern,” said Yang Lyngen, head of the United States. betting strategy at BMO Capital Markets.
Across the Atlantic, the IHS Markit PMI for manufacturing activity in the euro area stood at 62.9 for the month after 62.5 in March, reflecting an improvement in the economic strength of the bloc.
“Manufacturing in the euro area is booming and a new PMI record was set for the second straight month in April,” said Chris Williamson, chief economist at IHS Markit.
“Over the past two months, production and order volumes have improved at an unmatched rate since the study began in 1997, with the surge in demand driven by the economy opening up from the Covid-19 lockdown and improving the outlook for the year ahead.”
Germany’s and France’s CAC 40 Xetra Dax closed 0.7% and 0.6%, respectively, up over 11% over the year. Markets in London were closed for a public holiday.
Investor sentiment is also supported by a sharp rebound in corporate earnings in the first three months of 2021 compared to the same quarter last year when the coronavirus pandemic began to hit large companies.
According to FactSet, the S&P 500 groups that have so far released quarterly numbers have reported 53% overall year-over-year growth. Of the 306 groups that released their data, 268 exceeded expectations.
A similar situation was seen in Europe, where companies listed on the Stoxx 600 reported nearly 75 percent gains in earnings. Overall, according to Goldman Sachs, the benchmark average profit exceeded the consensus expectations of analysts by 15 percent, which is the biggest “surprise” since emerging from the global financial crisis more than a decade ago.
While the response of individual stocks to upbeat earnings in the US and Europe has been muted, signs of a robust recovery for many large enterprises have helped support share prices, analysts say.
“The effects of fiscal stimulus and the recovery in consumer and business demand from COVID-19 are driving extraordinary levels of growth, especially in the US, that are likely to continue for several more months,” said UBS’s Linda Mazziotta. Capital Management. “In turn, this favorable macroeconomic backdrop is contributing to a stronger-than-expected recovery in corporate earnings.”
Another wave of results is due this week, when companies such as Volkswagen and Siemens in Germany, PayPal and AIG in the US, and Nintendo in Japan release financial reports.