Oil Stocks- Why Did the Stock Market Rise? Bank and Industrials Stocks Are Soaring.
Stocks rose Friday, led by some of the most economically sensitive sectors, and powered the
DOW JONES GLO(BA)L/DJIA”>
Dow Jones Industrial Average
indexes to records. The rally comes as inflationary signals emerged convincingly.
The Dow rose 297.03 points, or 0.89%, to close at 33,800.60, and the S&P 500 tacked on 31.63 points, or 0.77%, to end at 4,128.80. The
rose 70.88 points, or 0.51%, to close at 13,900.19. The biggest gainer in the S&P 500 was
(ticker: PVH), an apparel maker whose shares soared 5.6%.
Economic data signaled more than a whiff of inflation. The producer price index, which measures the prices of goods manufacturers are buying, rose 1% in March from February, beating estimates for a 0.4% rise. Year over year, the index rose 4.2%, the biggest such increase since 2011, according to Citigroup economists. Strong demand and supply shortages both contributed to the notable uptick in prices. Investors are watching whether the producer price inflation will flow through into consumer inflation—in other words, companies may pass higher costs along to the consumer.
Data released Friday also show that Chinese manufacturers paid 4.4% higher prices year over year. If the cost for U.S. importers to buy Chinese goods rises, that could present another reasons for companies to raise prices for the consumer.
Should inflation keep running above expectations, the Federal Reserve would be more likely to lift interest rates ahead of schedule. To be sure, the Fed has consistently reiterated its policy will remain accommodative of the economy and financial markets for the foreseeable future, but investors are taking note of the inflationary dynamics in the economy; The 10-year Treasury yield inched up to 1.66% on Friday from 1.63%.
This type of economic environment—one driven by strengthening demand—is a major positive for mature companies whose fortunes are tied to the current perceived strength of the economy. Banks, for example, had a strong day, with the
SPDR S&P Bank
ETF (KBE) up 1.0%. Banks make more loans when the economy thrives and those loans are more profitable when long-dated interest rates rise. The industrial group posted strong gains as well, with the
Industrial Select Sector SPDR
ETF (XLI) up 1.0%.
Energy stocks, though, had a rough day because the price of crude oil fell 0.4% to $59.35 a barrel. The price of oil is up more than 20% this year, but has recently fallen 10% from its 2021 high after a torrid run. The
Energy Select Sector SPDR
Fund (XLE) fell 0.7% Friday.
Growth stocks underperformed cyclicals, as rising inflation and long-dated interest rates erode the value of future cash flows; by their nature, companies that are still growing will see the bulk of their profits potentially years down the line. The
an index of large-capitalization growth technology stocks, managed to eke out a gain of 0.6%.
Keep watching inflation and the Fed.
Write to Jacob Sonenshine at [email protected]