Banks and energy companies helped power U.S. stocks broadly higher in midday trading Wednesday as the market clawed back some of its losses from a day earlier.
Financial sector stocks accounted for much of the rally, which reversed an early slide. Big banks were among the sector’s gainers. Wells Fargo rose 2% and Bank of America added 1.7%.
Energy stocks notched the biggest overall gain as crude oil prices climbed 1.8% after the government reported that stockpiles declined from last week. Cimarex Energy jumped 9.7%.
Both sectors have taken the heaviest losses this month as fear that the U.S. trade war with China is hampering global economic growth roiled markets.
Falling oil prices, which tend to decline with the perception that there will be less economic growth, can weigh on energy stocks. Falling bond yields, meanwhile, have weighed on banks. The 10-year Treasury note is a benchmark interest rates on mortgages and other consumer loans, so when that yield declines, it translates into lower profits for lenders.
Banks surged Wednesday even as bond yields continued to move lower as investors shifted more money into government bonds. The trend continued to drive long-term bond yields further below short-term ones. The so-called inversion of the U.S. yield curve is a rare phenomenon that has correctly predicted previous recessions.
“You’re seeing investors hedge their bets, but also take advantage of the pockets of opportunity in sectors that have been hurt by the 10-year yield coming down,” said Quincy Krosby, chief market strategist at Prudential Financial.
The S&P 500 was up 0.5% as of 12:40 p.m. Eastern Time. The Dow Jones Industrial Average rose 172 points, or 0.7%, to 25,950.
The Nasdaq, which is heavily weighted with technology stocks, recovered from an early stumble and was up 0.2%. Investors favored smaller company stocks a day after they fell sharply. The Russell 2000 index gained 1.4%.
The market is on track to end the week with a gain after having declined the past four weeks in a row.
Uncertainty over the U.S.–China trade conflict and its impact on corporate profits has weighed on the market this month. The S&P 500 is on track for its second monthly drop this year.
Investors’ anxiety has been visible in the surge in demand for U.S. government bonds.
The yield in the 10-year Treasury fell below that of the two-year Treasury on Tuesday and remained lower Wednesday. The 10-year yield slid to 1.46%, down from 1.49% late Tuesday. The two-year was at 1.50%, down from 1.52% a day earlier.
When the yield curve inverted earlier this month for the first time since 2007, it led to a broad market sell-off.
Still, while the inversion in the yield curve has been a good indicator of a coming recession in the past, other factors may be skewing what’s happening in the U.S. bond market. Many other countries’ long-term bonds now carry negative yields, making U.S. Treasuries more attractive. That’s helping to fuel the surge in demand for bonds and the ensuing drop in yields.
This means market watchers trying to gauge the likelihood of a recession will have to rely more on economic data.
Still, much of the market’s action has been a reaction in recent weeks to headlines on trade.
Last week, the trade conflict escalated again with Washington and Beijing threatening new tariffs on each other’s goods, triggering a sharp sell-off in global markets. On Monday the market recouped some of those losses after President Donald Trump said his negotiators had received encouraging calls from China over the weekend. Traders drew encouragement from the development, even though China’s foreign ministry denied knowledge of any such calls.
U.S. and Chinese trade negotiators are due to meet next month in Washington, but neither side has given any indication of offering concessions to break a deadlock. A round of talks last month in Shanghai ended with no sign of progress.
Investors were also weighing a mixed batch of corporate earnings reports and outlooks Wednesday.
Autodesk plunged 8.3% after the software company slashed its full-year forecasts, while Movado Group sank 18.3% after the company’s earnings and revenue fell short of Wall Street’s forecasts.
Dycom Industries jumped 9.1% after its second quarter results came in ahead of analysts’ expectations.
European markets were broadly lower after British Prime Minister Boris Johnson moved to suspend Parliament, which would hamper lawmakers’ efforts to stop a no-deal departure from the European Union in October.