Wall Street’s S&P 500 followed European bourses higher as investors weighed surveys pointing to robust growth in the US and eurozone factory sectors and a blockbuster corporate earnings season.
The benchmark S&P 500 index closed up 0.3 per cent while the Dow Jones Industrial Average had risen 0.7 per cent. The technology heavy Nasdaq, meanwhile, had lost 0.5 per cent by the time the closing bell rang, dragged down by declines in some of Wall Street’s high-flying tech companies.
Both the Nasdaq and the S&P 500 had touched highs last week.
The energy, materials and industrials sectors had among the strongest gains in the blue-chip index, as an Institute for Supply Management survey showed US factory-sector activity continued to rise at a swift pace in April even as the rate of growth slowed considerably from the previous month.
The gauge came in at 60.7 last month from a 37-year high of 64.7 in March — leaving it well above the 50 line separating expansion from contraction. April’s reading missed the Wall Street consensus forecast of 65 but showed “activity in the sector is still expanding at a solid pace”, according to Thomas Simons, economist at Jefferies.
US government debt gained slightly in price after the ISM data came in below estimates, pushing the yield on the 10-year Treasury note down 0.02 percentage points to just above 1.6 per cent.
“While the manufacturing sector isn’t expected to be a major driver of hiring during this next stage of the recovery, the perception that growth might have reached stall-speed for goods production is a marginal concern,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets.
Across the Atlantic, the IHS Markit PMI index for manufacturing activity in the eurozone registered 62.9 for the month, building on a reading of 62.5 in March, in a sign that economic strength in the bloc is improving.
“Eurozone manufacturing is booming, with a new PMI record set for a second month running in April,” said Chris Williamson, chief business economist at IHS Markit.
“The past two months have seen output and order books both improve at rates unsurpassed since the survey began in 1997, with surging demand boosted by economies opening up from Covid-19 lockdowns and brightening prospects for the year ahead.”
Germany’s Xetra Dax and France’s CAC 40 indices closed up 0.7 per cent and 0.6 per cent respectively, taking their advances for the year to more than 11 per cent. London’s markets were closed for a public holiday.
Investor sentiment has also been buoyed by a strong revival in corporate earnings in the first three months of 2021 compared with the same quarter last year, when the coronavirus pandemic started to hit big companies.
Groups listed on the S&P 500 that have disclosed quarterly figures so far have reported overall year-over-year growth of 53 per cent, according to FactSet data. Of the 306 groups that have published their figures, 268 have exceeded expectations.
A similar situation has played out in Europe, where companies listed on the Stoxx 600 have reported profit growth of almost 75 per cent. Overall, average earnings for the benchmark have exceeded the consensus expectation of analysts by 15 per cent, the biggest “upside surprise” since the recovery from the global financial crisis more than a decade ago, according to Goldman Sachs.
While individual stock reactions to upbeat earnings have been muted in the US and Europe, signs of a strong recovery for many big businesses have helped support stock prices, analysts say.
“The effect of fiscal stimulus and the post-Covid-19 bounceback in consumer and business demand is leading to extraordinary levels of growth, particularly in the US, that are likely to persist for a number of months yet,” said Linda Mazziotta at UBS Wealth Management. “In turn, this supportive macro backdrop is feeding through into a stronger-than-expected recovery in corporate earnings.”
Another wave of results are due this week, with companies such as Volkswagen and Siemens in Germany, PayPal and AIG of the US, and Nintendo of Japan issuing financial reports.