Wall Street rally stretches from Big Tech to small caps

US stocks gained in a broad-based rally as investors weighed the resilience of the world’s largest economy against prospects for aggressive policy action to curb inflation. Treasury yields climbed across the curve, while oil fell on demand concerns.

The S&P 500 bounced back from the lowest close in more than a month, rising 1.6 per cent5 with all 11 main industry groups advancing except energy. The tech-heavy Nasdaq 100 jumped 2.2 per cent, as did the small-cap Russell 2000 index. Yields on short-end Treasuries — the most sensitive to changes in interest rates — led the move higher. The Dow Jones Industrial Average added 1.5 per cent.

Technology stocks helped power the broad gains. Pricey valuations for many of the bigger technology companies give them more sway in directing the broader market higher or lower. Microsoft rose 1.7 per cent.

Chicago Fed President Charles Evans said on Tuesday that interest rates will probably rise above the neutral level. Investors, already betting on an almost half-point Federal Reserve rate increase next month, have been reassessing expectations after St Louis Fed President James Bullard said hikes of as much as 75 basis points shouldn’t be ruled out. The last increase of such magnitude was in 1994.

“Generally, most markets are focused on how fast the Fed and other central banks are going to go, and ultimately what rates are going to take a breather at,” Brian Nick, chief investment strategist at Nuveen, said by phone. “Underlying all of this, though, is the fact that economic data still is quite solid. I would say it’s strong in the United States at this point.”

Government data on Tuesday showed US housing starts rose unexpectedly in March to the highest level since 2006.

The earnings season continued on Tuesday, with Johnson & Johnson gaining after reporting first-quarter earnings that beat estimates and raising its dividend. The advance comes despite the drugmaker cutting its annual profit forecast and suspending guidance for COVID-19 vaccine sales.

So far, with just 48 companies in the S&P 500 reporting results, 79 per cent have posted positive surprises, data compiled by Bloomberg show. On Monday, Bank of America joined a string of earnings beats by big lenders.

“The US first-quarter earnings season, which continues this week, looks set to be positive, and we forecast earnings per share growth of 10 per cent for 2022 overall and 7 per cent for 2023,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.

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“Against this backdrop, investors should also seek long-term value in stocks. Periods of heightened market volatility and uncertainty can often lead to attractive longer-term entry points in areas of structural growth.”

Oil retreated, snapping a four-day rally, as traders weighed the precarious demand outlook. Copper rose with other base metals as disruptions at mines in Peru added to worries about tight supplies at a time when inventories are at alarmingly low levels.

Disruptions to supply chains from China’s lockdowns and to commodity flows from the war in Ukraine have kept pressure on central banks to rein in runaway prices at a time when global growth is tipped to slow. The International Monetary Fund slashed its world growth forecast by the most since the early months of the pandemic, and projected even faster inflation.

Russia’s military pressed on with its offensive in southern and eastern Ukraine, with President Volodymyr Zelenskiy saying Moscow had launched a new campaign focused on conquering the Donbas region.