Markets skyrocketed on Tuesday on additional moves from the Federal Reserve and a shocking uptick in retail sales.
MANHATTAN (CN) — The Federal Reserve’s announcement on new lending facilities helped markets bloom on Tuesday, with a report showing the largest monthly increase retail sales in May gilding the lily.
At the morning bell, the Dow Jones Industrial Average gained a whopping 823 points, a 3.2% increase. The S&P 500 and Nasdaq followed close behind, posting increases of 2.7% and 2.3%, respectively.
Market gains were primarily driven by the Federal Reserve unveiling its much-anticipated Main Street Lending Program on Monday. The program, designed to complement the Small Business Administration’s Paycheck Protection Program, will provide loans to struggling small- and mid-sized companies.
The Fed also finalized plans to purchase up to $750 billion in individual corporate bonds on the secondary market. Bond issuers must be rated BBB- or better prior to March 22, when lockdowns caused many companies to shutter.
While markets overall were buoyed by the new programs, some experts question why the Fed is getting involved in corporate bonds at all.
“So with the Fed now distorting private markets and nationalizing private assets, what individual bonds will the Fed be buying?” asked Peter Boockvar, chief investment officer at Bleakley Advisory Group in Tuesday note, noting that the central bank will be purchasing bonds from the likes of Microsoft, Amazon and Bank of America.
“This is the Fed’s idea of an emergency situation that they think they need to be doing this. Are there not private investors that will buy these bonds?” Boockvar asked.
In a blog post, University of Oregon economics professor Tim Duy wrote that the Fed is trying to boost the value of a wide variety of assets, but that the central bank won’t admit doing so to keep Congress focused on further fiscal stimulus. “I understand why they want to pursue such a policy,” Duy wrote. “I just don’t understand why they don’t just say they are pursuing such a policy.”
This week will be marked primarily by testimony to Congress by Federal Reserve Chairman Jerome Powell, who will answer questions about the central bank’s monetary policy. Powell is scheduled to appear first before the Senate Banking Committee later Tuesday morning. On Wednesday he will speak to the House Financial Services Committee.
Markets also were helped along Tuesday morning by a report showing a surge in retail sales in May. According to the Census Bureau, retail sales jumped up almost 18% last month, a stark difference from the roughly 15% drop in sales posted in April. The gains were far above those expected by many analysts, who forecast a 5% to 8% increase in sales.
The president cheered the report. “Wow! May retail sales show biggest one-month increase of ALL TIME, up 17.7%,” President Trump wrote in a tweet minutes after the report was released. “Far bigger than projected. Looks like a BIG DAY FOR THE STOCK MARKET, and JOBS!”
Retail sales in May were still 1.4% lower than sales in May 2019, however, and several kinds of retail still suffered greatly year over year. Furniture sales saw a 21% drop, electronics a 30% drop, gas stations a 31% decrease, and clothing a 63% decline in May.
In Europe, investors rallied, with markets in Germany and France inching toward a 4% increase while the pan-European Stoxx 600 gained 3% by 8:30 a.m. EST. Markets in Asia already had leapt up on Tuesday. In South Korea, the Kospi gained 5%, while Japan’s Nikkei closed up 4.8%. Markets in Hong Kong, China, and Australia also posted sizeable gains.
Last week marked huge swings in the markets, with U.S. exchanges on Thursday posting their worst day since state lockdowns took hold in mid-March. On Friday, Wall Street swung back into positive territory with mild gains.
Investors have become increasingly rattled as health officials state the growing likelihood of an upswing in the Covid-19 pandemic. More than 100,000 new cases of the virus have been reported each day since May 27.
More than 8 million people have been infected by Covid-19 worldwide, while about 437,000 have died, according to data compiled by Johns Hopkins University. In the United States, 2.1 million people have contracted Covid-19, while more than 116,000 have died.