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Dow hits record in stock rally as inflation fears recede

Dow hits record in stock rally as inflation fears recede

FILE PHOTO: Dividers are seen inside a trading post on the trading floor as preparations are made for the return to trading at the New York Stock Exchange (NYSE) in New York, U.S., May 22, 2020. REUTERS/Brendan McDermid

REUTERS: The S&P 500 rose on Wednesday and the blue-chip Dow hit a record high after tepid consumer price data for February calmed inflation worries and Congress gave final approval to one of the largest economic stimulus measures in U.S. history.

A rotation into sectors such as energy and financials continued, both in small- and large-cap stocks, as investors bet on consumer spending when the U.S. economy reopens and sold the big tech names that have fueled the rally since last March.

An expected economic surge once the coronavirus vaccines are rolled out along with the monster fiscal stimulus have triggered inflation fears and a spike in Treasury yields, leading the Nasdaq to tumble as much as 12per cent from its Feb. 12 record close.

But an auction of US$38 billion in benchmark 10-year Treasury notes was not as bad as feared as underlying inflation remained muted, helping push yields down to a session low of 1.506per cent.

The "market seemed nonplussed and Treasuries rallied but that didn't seem to give a boost to tech (stocks)," said Mark Luschini, chief investment strategist at Janney Montgomery Scott.

Rising yields have weighed on technology shares as they rely on cheap funding for growth.

Investors are shifting funds from tech stocks with lofty valuations to other groups, such as energy and financials, that are undervalued and more of a play on an improving economy in a post-COVID world than big tech is, said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

"It is occurring in fits and starts," Tuz said. "That is essentially the overwhelming theme in the market right now and it probably will continue until these things run their course."

The move away from Apple Inc, Amazon.com Inc, Facebook Inc, Tesla Inc and Microsoft Corp, all down on the day, led small-cap stocks to rise more than double the gains of the S&P 500.

Also helping lift equities are rising estimates for U.S. corporate profitability this year following surprisingly strong fourth-quarter earnings and growing optimism about the recovery.

Unofficially, the Dow Jones Industrial Average rose 1.45per cent to end at 32,295.71 points, while the S&P 500 gained 0.60per cent to 3,898.73. The Nasdaq Composite dropped 0.04per cent to 13,068.83.

Shares of Roblox Corp jumped 54per cent at one point in its New York Stock Exchange trading debut, valuing the U.S. gaming company at more than US$42 billion and making it one of the most active stocks on the NYSE.

The Nasdaq closed lower in choppy trade after logging its best one-day percentage jump in four months on Tuesday.

The sweeping US$1.9 trillion COVID-19 relief bill passed by the U.S. House of Representatives gave President Joe Biden his first major victory in office.

Some of the US$1,400 in payments heading to most Americans could end up in the stock market and could provide a boost for GameStop and other stocks popular among retail investors active in online social media forums.

Trading in GameStop gyrated wildly after multiple NYSE trading halts as shares of the video game retailer and other so-called meme stocks approached levels last seen during their late January rally.

Among other "meme" stocks, Koss Corp soared, rising as much as 70per cent before the bell.

(Reporting by Karen Pierog in Chicago, Herbert Lash in New York, and Medha Singh and Shashank Nayar in Bengaluru; Editing by Maju Samuel and Lisa Shumaker)

Source: Reuters

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