Dow surges 400 points as comeback rally gains steam

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Stocks rebounded on Tuesday after concerns about the spread of Covid-19’s delta variant caused investors to dump equities in the prior session.

The Dow Jones Industrial Average gained 400 points Tuesday, or 1.2%. The S&P 500 rose 0.77% and the Nasdaq added 0.38%.

Many of the stocks that were hit the hardest on Monday, were bouncing early Tuesday. American Airlines added nearly 0.8%, and Delta Air Lines added 1%.

Royal Caribbean jumped 0.6%, after falling 4% on Monday. Carnival gained 0.7%.

Bank shares were slightly bouncing as investors were still eyeing bond yields under pressure. JPMorgan was up 0.5%, and Bank of America added nearly 1%.

IBM shares jumped more than 4% on Tuesday morning. The enterprise technology and services provider reported second-quarter results after the bell on Monday, topping expectations and showing the strongest revenue growth in three years. The company had the biggest point impact on the Dow.

Netflix, which will be releasing its second-quarter earnings after the bell on Tuesday, was down 1.7%.

Wall Street suffered a sharp sell-off Monday as investors feared that the fast-spreading delta coronavirus variant could hinder the economic recovery. The blue-chip Dow tumbled more than 700 points, or 2.1%, to post its worst day since October 28 of last year. The S&P 500 fell 1.6% and the Nasdaq Composite dropped about 1.1%.

“We remain constructive on equities and see the latest round of growth and slowdown fears premature and overblown,” wrote Dubravko Lakos-Bujas, head of U.S. equity strategy at JPMorgan, in a note Tuesday. The strategist raised his year-end price target for the S&P 500 to 4,600 from 4,400, representing a gain of 8% from Monday’s close.

Traders continued to eye the 10-year Treasury yield, which appeared to be driving the action in the equity markets. When the yield fell to a new 5-month low on Monday, it heightened concerns about the slowing global economy and helped push equities lower. The 10-year yield fell 3.4 basis points to 1.139% early Tuesday. It was above 1.78% in March, and its fall amid the recovering economy has mystified and worried investors.

Even after Monday’s drop, the S&P 500 is just 3.1% below its record hit last week. Additionally, while the equity benchmark dipped below its 50-day moving average during Monday’s rout, it ultimately closed above that key technical level, offering some hope to traders looking for a rebound on Tuesday.

CNBC’s Jim Cramer said the sell-off Monday pushed out some of the speculators taking too much risk in stocks this year and it would end soon.

“Once the speculators are blown out … and the stocks that are already down huge start rallying, then we can find a tradeable bottom,” Cramer said. “We’re close, but the speculators haven’t been fully crushed yet.”

Bitcoin fell below the $30,000 level overnight, triggering selling across cryptocurrencies and another sign that speculation may be coming out of the markets.

New Covid cases are rebounding in the U.S. as the delta variant spreads, largely among the unvaccinated. The U.S. is averaging about 26,000 daily cases in the last seven days, more than double the average from a month ago, according to CDC data. 

“Many of the cyclical companies are selling off on fears that Covid will stop the recovery in its tracks,” said Chris Zaccarelli, CIO at Independent Advisor Alliance. “We don’t believe that that’s the case and are willing to let the sell-off run its course and buy the dip on the belief that the economy will fully recover and return to its prior growth trajectory, bringing most of the cyclical companies in the airline, travel and leisure industries along with it.”

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