Last-minute stock rally makes for merry start to May

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A late rally in big technology stocks erased an afternoon slump on Wall Street and left major indexes moderately higher, following a brutal April in which widespread technology sell-offs dragged down major benchmarks.

The S&P 500 rose 0.6%, accelerating in late-afternoon trading to close at 4,155. The Dow Jones Industrial Average rose 0.3% on the day, and the tech-heavy Nasdaq climbed 1.6%.

“‘Sell in May and go away’ is probably the most widely cited stock market cliché in history,” said LPL Financial Chief Market Strategist Ryan Detrick in a research note. “The S&P 500 Index has closed higher during the month of May in eight of the past nine years — so ‘sell in June’ might be more appropriate.” 

Household goods companies and retailers had broad losses near closing but picked up in after-hours trading. Procter & Gamble crept up by 0.2%. Amazon shares ended the day up 4.4% but continue to fall below 0% in aftermarket trading. Amazon warehouse workers in New York City voted against forming a union on Monday, dealing a blow to organizers who last month pulled off the first successful U.S. organizing effort in the retail giant’s history.

Technology stocks also bounced back up in end-of-day trading. Many companies in the sector have pricey stock values and therefore have more force in pushing the major indexes up or down. Apple closed at 0.2%.

Several big communications companies gained ground. Facebook’s parent, Meta, was up 5.3%.

The positive start to May follows a dismal April, where Big Tech companies dragged the broader market lower as they started to look overpriced, particularly with interest rates set to rise sharply.

April marks worst month in years for Nasdaq 02:53

U.S. crude oil prices were relatively unchanged after slipping earlier in the day. European energy ministers are meeting in Brussels to discuss Russian supply issues and sanctions. Russia’s invasion of Ukraine prompted a jump in already high oil and natural gas prices.

Bond yields rose significantly. The yield on the 10-year Treasury was at 2.98% after briefly rising to 3.00% from 2.89% late Friday. It hasn’t been above 3% since December 3, 2018, according to Tradeweb.

Treasury yields have been rising all year as investors prepare for higher interest rates. Markets are expecting an extra-large interest rate increase this week from the Federal Reserve as it tries to tame inflation, which is at its highest level in four decades.

The central bank is expected to raise short-term interest rates by double the usual amount when it releases its latest statement on Wednesday. It has already raised its key overnight rate once, the first such increase since 2018, and Wall Street is expecting several big increases over the coming months.

Fear of Fed-driven turbulence

Fed rate hikes will raise costs for credit cards, car loans and mortgages. Investors have been fretting about rising inflation and its impact on businesses and consumers. But they are also concerned about how the rate hikes will play out in fighting inflation and whether a more aggressive Fed could actually hurt economic growth.

Concerns about rising inflation have also been hanging over the latest round of corporate earnings. Disappointing results or outlooks from Apple, Google-parent Alphabet and Amazon helped fuel the market selloff last week. Investors are reviewing the latest results and statements to gauge just how heavily rising costs have impacted operations and whether price hikes have hampered sales.

“The central question for investors is whether the Fed can steer both inflation and growth closer to trend without provoking a recession,”  Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a note. “We expect growth in 2022 to be slower than last year, but not tip over into recession. Our view remains that the right strategy is to position for inflation — a clear and present fact — rather than recession, which is still only a possibility.”

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