S&P 500 scores best day gain in about 9 months, as March kicks off with brighter economic outlook

U.S. stock-market benchmarks surged Monday, with the S&P 500 booking its best day of gains since June, as a gauge of manufacturing activity showed the economy was picking up steam at the start of the year.

Strategists also attributed the enthusiasm to a cool-down of last week’s rapid rise in bond yields that had unsettled the bullish mood on Wall Street and threatened to offset the easy-money policies implemented by the Federal Reserve.

Read: As rising Treasury yields spook stock investors, March looms like a lion

How did stock benchmarks perform?

• The Dow Jones Industrial Average DJIA, +1.95% rose 603.14 points, or 2%, to end at 31,535.51, booking its best daily gain since Nov. 9, according to Dow Jones Market Data.
• The S&P 500 SPX, +2.38% climbed 90.67 points, or 2.4%, to finish at 3,901.82, its best daily gain since June 5.
• The Nasdaq Composite COMP, 3.01% added 396.48 points, or 3%, closing at 13,588.83, for its best day since Nov. 4.
• The Russell 2000 RUT, +3.37% of small capitalization stocks rose 3.4% to end at 2,275.32. It was its sharpest daily percentage gain since Jan. 6.

Last week, the Dow DJIA, +1.95% put in a weekly decline of 1.8%, the S&P 500 SPX, +2.38% fell 2.5%, and the Nasdaq Composite Index COMP, 3.01% was off 4.9% over the period. For the month, the Dow gained 3.2%, the S&P 500 rose 2.6% in February, and the Nasdaq eked out a gain of 0.9%.

What drove the market?

Stock markets rose sharply to start the week and month, after last week’s rocky trading highlighted the challenges presented by a normalization of interest rates as the economic recovery takes hold.

“We have a very strong market,” Peter Cardillo, chief market economist at Spartan Capital, told MarketWatch. “Yields have come back down from last week and of course the stimulus helps,” he said, but also warned that markets should probably brace for benchmark rates to move higher.

“I think we are in for one more trip north,” Cardillo said of 10-year Treasury yields edging about 1.5 basis points lower to 1.444% on Monday. “That from time-to-time can take the wind out of markets.”

But for now, a combination of strong economic data and a stabilization in the bond-market helped to tilt investors’ attention back to brightening prospects for the U.S. economy.

The Institute for Supply Management said its manufacturing index rose to 60.8% last month from 58.7% in January, matching a two-year high. Any reading above 50% represents an expansion in economic activity.

“Increasingly, it appears that the economy sidestepped a feared hard-landing despite a period of soft consumer spending that contributed to negative conditions for parts of the service sector and a surge in layoffs. If anything, it appears that manufacturers may have benefited from consumer spending habits that favored goods over services in recent months,” wrote Jim Baird, chief investment officer at Plante Moran Financial Advisors.

Central banks across the world have begun to push back against higher rates. The Reserve Bank of Australia increased its buying of longer-dated debt, while the European Central Bank policy maker François Villeroy de Galhau said the ECB “can and must react” against any undue tightening of financial conditions.

Market participants are making the case that the surge in bond yields and the selloff in stocks, due to higher borrowing costs that rising rates imply, may have been overdone last week. A raft of U.S. companies took advantage of calmer rates Monday to issue fresh debt.

Sebastien Galy, senior macro strategist at Nordea Asset Management, wrote that the so-called “tantrum” by markets may have found some momentary stabilization.

“This is most likely the end of this temper tantrum and presents opportunities for investors faced with dislocated markets,” he said, in a Monday note.

However, the issues with rising rates, which the Federal Reserve has suggested is healthy because it reflects the hope for a better economy in the future, aren’t likely to just fade away.

“The odds are that in the second half of the year, when the economy fares better, this theme of a temper tantrum will once again kick in sending shock waves into growth,” Galy wrote.

The Centers for Disease Control and Prevention advisory panel voted unanimously to recommend the use of Johnson & Johnson’s JNJ, +0.54% one-shot coronavirus vaccine, coming after the Food and Drug Administration greenlighted the COVID vaccine, which is considered by some medical professionals a potential game-changer in getting people inoculated against the deadly pathogen.

J&J’s said it started shipping 4 million doses on Monday and that Americans should start getting its vaccine within 48 hours. It is fridge stable for three months and requires half the dose of competitors Pfizer-BioNTech and Moderna, which must be stored at subzero temperatures.

Also over the weekend, the House passed the Biden administration’s $1.9 trillion COVID relief bill, which must be considered by the Senate. Some lawmakers are aiming to finish the aid package before March 14, when some federal unemployment assistance expires.

Markets may also glean more insights from Fed officials this week. Fed Gov. Lael Brainard spoke on Monday, calling for more reforms to the structure of money-market funds and the Treasury market.

Which stocks were in focus?

• AstraZeneca  AZN, -0.60%  shares closed down 0.6% after it said it sold its entire 7.7% stake in U.S. biotech company Moderna Inc. MRNA, +1.67% for more than $1 billion.
• Twitter Inc. TWTR, +0.74% shares rose 0.7% after it announced a $1.25 billion convertible bond offering in a private placement Monday, with the proceeds to be used to pay any sums due on its 1% convertible senior notes due 2021 and for general corporate purposes.
• Shares of Apple Inc. AAPL, +5.39% climbed 5.4% after all 270 of its stores in the U.S. were open to the public for the first time since last March.
• The group of “meme” stocks, led by videogame retailer GameStop Corp.  GME, +18.34% that have been volatile in recent weeks as investors on a Reddit subgroup have egged each other on, were active again Monday. GameStop shares soared 18.3%, while shares of AMC Entertainment Holdings Inc.  AMC, +14.61%,  the world’s biggest cinema chain, advanced 14.6%. BlackBerry Ltd  BB, +8.56% climbed 8.6%.
• Rocket Lab USA Inc. announced Monday it will be going public through a special-purpose acquisition company, or SPAC, called Vector Acquisition Corp. VACQ, in a deal that values the launch and space systems company at $4.1 billion.
• Shares of NavSight Holdings Inc.  NSH, +4.97% rallied 5% on Monday, after the SPAC announced a merger that will take space-based data and analytics company Spire Global Inc. public.
• Shares of Royal Caribbean Group  RCL, -2.06% fell 2.1% after the cruise operator said it has commenced a $1.5 billion public stock offering.
• Walmart Inc. WMT said Monday it would scrap a $35 minimum for Express delivery, a service that is currently offered in nearly 3,000 of its stores.
• CAE Inc. CAE rose 13.2% after it announced Monday an agreement to buy L3Harris Technologies Inc.‘s LHX military training business for $1.05 billion.