Dow surges 236 points as investors overcome growth concerns to erase early losses

FILE PHOTO: Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., February 28, 2020. REUTERS/Brendan McDermid
Traders work on the floor at the NYSE.

  • The Dow soared more than 200 points on Wednesday, reclaiming a big portion of losses suffered during the previous session.
  • The S&P 500 also finished higher, fronted by a climb in the energy sector as oil prices leapt.
  • Industrial production in August returned to pre-pandemic levels, said the Federal Reserve.
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US stocks closed higher Wednesday, with strength from the energy sector and economic data helping the market recover some ground lost during declines this month.

The Dow Jones Industrial Average turned higher and jumped more than 200 points, retracing most of Tuesday’s loss of 292 points. Oil industry heavyweight Chevron was among Wednesday’s winners as energy stocks climbed with a rally in oil prices.

The S&P 500’s energy sector gained nearly 4%, outperforming the 10 other sectors tracked on the equity benchmark. Oil prices jumped, with West Texas Intermediate crude up 3.3% at $72.75 per barrel, extending gains after a larger-than-expected drawdown in weekly US oil stockpiles was reported Tuesday.

“Crude oil has been ripping higher on disrupted production leading to big declines in inventories,” said Jay Hatfield, CEO and portfolio manager at Infrastructure Capital Advisors, in a note Wednesday. Oil production has been hampered by the recent Ida and Nicolas hurricanes.

Here’s where US indexes stood at 4:30 p.m. on Wednesday:

  • S&P 500: 4,480.88, up 0.85%34,814.13

Investors also received a better reading than anticipated for manufacturing activity in the New York region from the Empire State Manufacturing Survey for August and the Federal Reserve said industrial production returned to pre-pandemic levels last month.

The Fed’s two-day policy meeting starts on September 21 and will feature its summary of economic projections, or the so-called dot-plot chart of interest-rate expectations.

Around the markets, shares of Wynn Resorts and Las Vegas Sands extended losses into a second session after Macau, China’s gambling enclave, said it will conduct a regulatory review of the industry.

Coinbase has increased the size of its bond sale to $2 billion after receiving an influx of bids from private investors.

Hedge fund billionaire Ray Dalio said on CNBC he believes regulators will take control of bitcoin if there’s mainstream success for the cryptocurrency.

Gold fell 0.7% to $1,791.08 per ounce. The yield on the US 10-year Treasury note rose to 1.31%.

Bitcoin gained 1.9% to $47,949.73.

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Global growth will hit a 5-decade high in 2021 on vaccine-powered rebound, OECD says in upgraded forecast

Japan shopping street coronavirus
  • The OECD lifted its 2021 global GDP estimate to 5.8% from 4.2%, forecasting the fastest growth since 1973.
  • Group of 20 countries will see even stronger growth and emerging countries will lag, the organization said.
  • Central banks need to look through temporary inflation and keep policy support in place, the OECD added.
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Economic recoveries are improving around the world, but the global rebound remains massively uneven, the Organization for Economic Co-operation and Development said in a new report.

The OECD revised its estimate for global gross domestic product higher on Monday, citing unprecedented policy support and the effectiveness of COVID-19 vaccines. Output is now expected to grow 5.8% in 2021, up from the December 2020 forecast of a 4.2% expansion. That rate would mark the strongest year of economic growth since 1973 and follow last year’s 3.5% contraction, the OECD said.

Global GDP will then grow 4.4% in 2022, according to the report. Global income will still sit roughly $3 trillion below its pre-crisis trend by the end of next year as emerging countries struggle to keep up.

“The global economy remains below its pre-pandemic growth path and in too many OECD countries living standards by the end of 2022 will not be back to the level expected before the pandemic,” Laurence Boone, chief economist at OECD, said.

Living conditions aren’t the only disparity expected to widen through the recovery. Real GDP is expected to grow 6.3% and 4.7% among G20 nations in 2021 and 2022, respectively. That outpaces the average growth estimate.

Meanwhile, some emerging-market economies are expected to post substandard growth in the near term. Countries still enduring deadly waves of COVID-19 such as India and Brazil “may continue to have large shortfalls in GDP relative to pre-pandemic expectations” and only bounce back once the virus threat fades, the organization said.

Improving vaccine distribution is key to supporting such countries, especially as virus uncertainties linger. New variants of COVID-19 could necessitate a return to partial lockdowns if populations aren’t vaccinated quickly enough, the organization warned. Such a resurgence could also drag consumer confidence lower and halt any rebound in spending.

Upside risks have emerged as well. Household saving boomed through the pandemic, and that cash could soon be unleashed as people unwind pent-up demand. Spending just a fraction of the bolstered savings “would raise GDP growth significantly,” the OECD said.

But with spending comes inflation. Supply-chain disruptions and bottlenecks around the world have driven material prices higher in recent months. When coupled with a sharp bounce in demand and various stages of reopening, price growth now sits at its highest levels in more than a decade. The OECD expects inflation to average 2.7% in 2021 before cooling to 2.4% next year.

Central banks should allow for a brief inflation overshoot as production normalizes and temporary pressures ease, Boone wrote. Running economies hot can allow for stronger hiring and wage growth, particularly among low-income groups. Central banks must “remain vigilant” and look through temporary inflation, the economist said.

“What is of most concern, in our view, is the risk that financial markets fail to look through temporary price increases and relative price adjustments, pushing market interest rates and volatility higher,” Boone added.

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The IMF lifts its global growth forecast with vaccination and stimulus likely to be a shot in the arm

Kristalina Georgieva
IMF Managing Director Kristalina Georgieva speaks at a press conference in Washington D.C., the United States, on March 4, 2020.

  • The IMF will lift its forecast for global economic growth in a report set for release next week.
  • Vaccination and new US stimulus were grounds for the upgrade, the IMF’s managing director said.
  • Still, developing economies are recovering far slower than advanced countries, she added.
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The International Monetary Fund will lift its projections for global economic growth in the wake of encouraging vaccination trends and major new stimulus in the US, Managing Director Kristalina Georgieva said Tuesday.

The IMF will roll out an upgraded set of forecasts for this year and for 2022 next week when it publishes its World Economic Outlook report, she said. The organization’s January estimates saw global output growing 5.5% in 2021 after a forecasted tumble of 3.5% the previous year. The months since have seen COVID-19 cases fall from their peaks, vaccine rollouts begin, and $1.9 trillion in new fiscal support from the Biden administration.

The developments all stand to boost global economic recoveries through the summer, Georgieva said in prepared remarks.

“This allows for an upward revision to our global forecast for this year and for 2022,” she said.

Without “extraordinary effort” from essential workers and scientists, the global recession seen through most of 2020 would have been “at least three times worse,” the managing director added.

The news isn’t all good. Georgieva highlighted that, despite the broadly improved outlook, the global recovery remains uneven and gaps between countries could widen in the coming months. The US and China are likely to reach pre-pandemic levels of gross domestic product by the end of the year, but “they are the exception, not the rule,” she said.

New virus strains in Europe and Latin America are fueling high uncertainty about the region’s prospects. Emerging and developing countries also endured a 20% drop in per-capita income, roughly twice that seen in advanced economies. The plunge leaves emerging countries with a much harder climb back to pre-crisis health.

“They already have more limited fiscal firepower to fight the crisis. And many are highly exposed to hard-hit sectors, such as tourism,” Georgieva said

One upgrade among many

The IMF joins a handful of other institutions turning more bullish toward the US and global rebounds. Fitch lifted its own forecast for global expansion on March 18 to 6.1% from 5.3%, similarly citing stimulus and progress toward reopening. The estimate implies the strongest year of global growth since at least 1980.

US growth will outperform slightly at 6.2%, Fitch said. That’s up from the previous estimate of 4.5%.

“It still looks reasonable to assume that the health crisis will ease by midyear, allowing social contact to start to recover. But immunization delays or problems remain the key risk,” the firm said.

Wall Street giants have also boosted their estimates in recent weeks. Morgan Stanley is among the most bullish, lifting its US growth estimate to 8.1% in 2021 from 7.6% in an early March note. The forecast also calls for US GDP to reach pre-pandemic levels by the end of the first quarter.

Bank of America raised its 2021 US growth estimate to 7% from 6.5% on Thursday, marking its fourth upgrade this year alone. The revision was entirely linked to Democrats’ new stimulus measure and the “exceptional consumer spending” seen among those receiving relief checks, the team led by Michelle Meyer wrote.

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