U.S. stocks traded higher Wednesday as bank stocks led the charge. The Dow Jones industrial average jumped 147 points with Goldman Sachs and Disney contributing the most gains. Caterpillar was the best-performing stocks in the index, rising 2 percent.
“A part of the equity rise today is to make up for what the markets thought to be excess pessimism,” said Komal Sri-Kumar, president of Sri-Kumar Global Strategies.
The S&P 500 advanced 0.9 percent with financials rising 1.54 percent to lead advancers. The SPDR S&P Bank exchange-traded fund (KBE), which tracks large banks, spiked 1.7 percent higher as investors braced for the release of the Federal Reserve’s stress test results.
Analysts expect several big banks to come out of the test with substantial increases in return to shareholders — potentially using cash reserves to pay out more than 100 percent of their profits. As a result, higher figures would also reflect banks’ confidence in their own financial health.
Shares of JPMorgan Chase and Goldman Sachs both climbed more than 1.5 percent.
Stocks also jumped after the European Central Bank tried to walk back remarks made by ECB President Mario Draghi a day earlier.
A source familiar with Draghi’s knowledge told Reuters that Draghi intended to signal tolerance for a period of weaker inflation, not an imminent policy tightening.
Draghi said Tuesday “the threat of deflation is gone and reflationary forces are at play,” sending the euro to a one-year high against the dollar. The currency pulled back from those levels on Wednesday following Reuters’ report.
“This just proves how trapped they are that after just one speech and the market reaction that followed has the ECB already in a tizzy,” said Peter Boockvar, chief market analyst at The Lindsey Group. “What do they think will happen when further tapering actually takes place which we still expect to happen in September?”
U.S. stock futures followed the dollar higher, with Nasdaq futures erasing losses. The Nasdaq has been in focus recently, with technology stocks facing pressure given their high valuation.
Most of tech rebounded Wednesday with Facebook, Apple, Amazon and Netflix all trading higher. Shares of Amazon briefly dipped lower after President Donald Trump took a swipe at CEO Jeff Bezos on Twitter.
The Nasdaq composite gained 1.2 percent.
The tech sector has been the stalwart of the U.S. stock market, rising about 17 percent for the year. But the tech sector dropped 1.6 percent Tuesday.
“The correction in Tech began a few weeks back and is ongoing… stay patient, better entry points are likely to be found in the weeks and months ahead,” Chris Verrone, head of technical analysis at Strategas Research Partners, said in a note Wednesday.
“While the reversal in Technology stocks is certainly a change, we’re reluctant to view recent price action too bearishly with flows moving into sectors like Financials and other risk barometers firming,” he said.
Financials entered Wednesday’s session as the second-best-performing sector over the past month, rising 2.42 percent amid the prospects of higher interest rates.
The benchmark 10-year yield sat at 2.22 percent, following sharp gains from the previous session.
In economic news, mortgage applications fell 6 percent last week, while pending home sales fell for the third straight month in May.
Source: CNBC
