The Rally Has Legs

By Nicholas Jasinski |  Wednesday, June 3

Justifiable Gains. Markets around the world rallied today, as investors wholeheartedly embraced the narrative of a faster economic rebound ahead. Economically sensitive stocks and industries outperformed, and safe-haven assets sold off.

Markets in Asia closed higher following better economic news from China, where a gauge of service sector activity rebounded to a nearly 10-year high in May. European stocks rallied after a eurozone services purchasing managers index rose to a three-month high in May, though it remains deep in contraction territory.

And in the U.S., this morning's ADP payrolls report showed that 2.76 million private-sector jobs were lost in May—much less than the 8.75 million expected by economists. The numbers are seen as a preview of broader employment data from the Bureau of Labor Statistics to be released on Friday.

Tangible signs in the data of a recovery under way may be pulling in previously skeptical investors, adding fuel to the rally—despite grim headlines everywhere. Here’s Ben Levisohn today:

The stock market’s rally in recent weeks has felt awfully disconnected from the grim reality on the ground. And that only felt more true as protests erupted around the country following the killing of George Floyd by a Minneapolis policeman.

Investors, however, are motivated by fear and greed, and right now both are helping—fear of missing out and greed as the market goes higher. That’s especially true after the bleakness was interrupted by some better economic news [in the ADP payrolls report.] That’s still a huge number of jobs lost, but it’s at least some evidence that the stock market really is reflecting a quick recovery in the U.S. economy.

The U.S. dollar, meanwhile, has slipped more than 5% from March highs , with half of that loss coming in the past two weeks. That's not a huge move relative to the S&P 500's 40% rally since late March, but it's a significant price change in the world of currencies. The decline shows that investors are willing to bet on riskier parts of the global economy.

The U.S. Dollar Index—which measures the price of the greenback against a basket of other currencies—ticked down another 0.4% today. Other safe-haven assets also fell. The price of gold lost 1.9%, to just over $1,700 an ounce. And the yield on the 10-year U.S. Treasury note surged 8 basis points, or hundredths of a percentage point, to 0.761%, as the price of the securities fell.

The Dow Jones Industrial Average closed up 2% for its third consecutive gain. The Nasdaq Composite gained 0.8%, putting it just over a percentage point away from a record high and up about 8% on the year. The S&P 500 rose 1.4% and the economically sensitive small-cap Russell 2000 index jumped 2.4% today.