US stocks erase all losses for the year

US stocks have recouped all of their losses for the year thanks to a rally spurred by central bank stimulus and optimism among investors that economic activity may be rebounding.

The S&P 500 advanced 1.2 per cent on Monday to close at 3,232.39, back above their level at the start of 2020, building on gains from Friday’s unexpected rise in US employment in May.

The blue-chip Dow Jones Industrial Average rose 1.7 per cent thanks largely to Boeing, on hopes of a rebound in air travel, while the tech heavy Nasdaq Composite added 1.1 per cent to set a new closing record of 9,924.75.

US stocks have climbed more than 40 per cent from a mid-March low, with the Nasdaq up 10.6 per cent since the start of the year and the S&P 500 now little changed. The rebound has come in spite of the recession caused by the coronavirus pandemic and civil unrest in the US after the killing of George Floyd.

“The history of markets is that they always overshoot both ways,” said Lee Spelman, head of US equities for JPMorgan Asset Management. “What you’re seeing is an expectation of a V-shaped recovery and that may prove to be too optimistic.”

Stanley Druckenmiller, a former hedge fund manager, said that “the excitement of reopening is allowing a lot of these companies that have been casualties of Covid to come back and come back in force”.

Support by the US Federal Reserve has also helped to alleviate the economic strain. The central bank has slashed interest rates to zero, launched an unlimited bond-buying programme and announced 11 lending facilities.

“I would also say I underestimated how many red lines, and how far, the Fed would go,” Mr Druckenmiller said, in an interview with CNBC.

European stocks failed to build on recent gains at the end of a quiet session on Monday, as a historic 18 per cent contraction in German industrial output in April undermined some investors’ confidence that there would be a swift recovery from the pandemic.

“At least for German industry, the period after the imminent rebound does not look too promising,” said Carsten Brzeski, chief economist for the eurozone at ING.

“Contrary to the financial crisis, and the important role of Asian countries in the swift recovery of German industry back then, there is currently no saviour in sight to quickly boost external demand,” he added.

Yields on German Bunds — the benchmark for the eurozone — were steady at around their highest level in two months after rising last week as investors sold haven assets following the European Central Bank’s announcement of further support measures to tackle the pandemic.

Frankfurt’s Xetra Dax equity benchmark fell 0.2 per cent, a decline matched by London’s FTSE 100, which slipped back from a three-month high. The continent-wide Euro Stoxx 600 fell 0.3 per cent.

After a near-40 per cent drop from late-February to mid-March, European stocks have rebounded strongly and now stand 10 per cent lower for the year.

Goldman Sachs strategists Jan Hatzius and Jari Stehn said that while the broker had increasing confidence in European growth prospects, the risk of a US disappointment was growing.

“We continue to forecast a whopping 24 per cent rebound in global GDP growth . . . driven by a quick normalisation in industries that can readily bounce back from social distancing, like autos, manufacturing, and commercial construction,” Goldman told clients. However, the US “is now a clear underperformer in virus control” and Friday’s jobs report “might result in complacency among fiscal policymakers”, they said.

In the Asia-Pacific region, Japan’s benchmark Topix rose 1.1 per cent while China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks added 0.5 per cent. Hong Kong’s Hang Seng was little changed.

Official Chinese data over the weekend showed that exports shrank 3.3 per cent in May in dollar terms, significantly less than the contraction forecast by economists. But imports fell more than anticipated due to weak local demand, raising questions over the pace of the country’s economic recovery from the virus.

In Japan, economic figures published on Monday showed that the world’s third-largest economy shrank at an annualised rate of 2.2 per cent in the first quarter of 2020, compared with initial estimates of a 3.4 per cent decline.

Oil prices fell after Saudi Arabia said that the extension of Opec+ production cuts until the end of July would not include voluntary curbs by a trio of Gulf producers. Brent crude ended 3.5 per cent lower at $40.80 a barrel while US marker West Texas Intermediate slipped 3.4 per cent to $38.19 a barrel.

Additional reporting by Robin Harding in Tokyo