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Dow stages nearly 590-point comeback after worst week since October

U.S. stocks fell last week after the Federal Reserve signaled that rate increases might arrive sooner than expected

Stocks opened higher on June 21 on Wall Street, getting the week off to a positive start after the S&P 500 posted its biggest weekly decline since February. (Richard Drew/AP)
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U.S. stocks jumped sharply Monday, with the Dow soaring nearly 590 points as it tried to rebound from its worst week since October.

Investors were spooked last week after the Federal Reserve signaled it could raise interest rates sooner than expected, in 2023. The Dow Jones industrial average lost nearly 3.5 percent over the five-day span, and several giants in the financial services and technology sectors saw their stocks pummeled. But anxieties seemed to have quelled Monday as traders processed the Fed guidance.

The Dow Jones industrial average added 586.89 points, or 1.8 percent, to settle at 33,876.97. The S&P 500 climbed 58.34 points, or 1.4 percent, to 4,224.79, while the tech-heavy Nasdaq composite index jumped 111.10 points, or nearly 0.8 percent, to close at 14,141.48.

Analysts said the rally suggested that last week’s interest-rate concerns may have been overblown, as any rate hike would be marginal and more than a year away. In the meantime, the U.S. economy’s near-complete emergence from pandemic-related restrictions has boosted fortunes in some important sectors.

“I think it took a weekend’s pause to realize the world wasn’t coming to an end,” said Michael Farr of the D.C.-based investment advisory firm Farr, Miller and Washington. “We are coming to the end of the second quarter with stellar year-to-date returns, a docile Fed, low interest rates and an economy that is emerging from shutdown. It all bodes well for a fairly bullish stock market.”

For much of the year, markets have been riding optimism about business reopenings and a robust coronavirus vaccine rollout. Consumer spending jumped by 20 percent in March as another round of stimulus checks filtered through the economy, before falling in April.

Now, with more than half of the country fully vaccinated, states like California and New York are allowing consumers to mingle mask-free. Some of the hardest-hit sectors — cruise lines and live music venues — are beginning to hum again.

Louis Navellier, founder of the Nevada-based investment firm Navellier & Associates, said the financial markets are also getting a boost from China’s crackdown on crypto mining, which sent the price of bitcoin sliding nearly 9 percent overnight to $32,551. As the price of the digital currency falls, money is flowing back into traditional assets.

But that optimism has been shadowed by speculation about how the Fed will try to temper financial markets that have been running hot — some say irrationally so — since the middle of 2020. Investors are sensitive to any sign that the Fed might ease financial supports for the markets, including record-low interest rates and continued asset purchases, which helped prop up the stock market at the outset of the public-health crisis.

Investors are looking toward Fed Chair Jerome H. Powell’s testimony Tuesday before the House select subcommittee on the coronavirus crisis for more insight on how the recovery is faring. And on Friday, the latest report on personal consumption expenditures — a favored inflation gauge for the Fed — should shed more light on the unique pressures shaping the pandemic economy. The stock market could also get a boost from second-quarter earnings reports expected in the coming weeks.

For some, the past week’s financial ups and downs offer a hint of a bumpy economic recovery.

“Overall, the first half of the year was one of a straight-line recovery toward the pre-pandemic normal, with a sudden pause in May as the problems of success started to slow the recovery process,” Brad McMillan, managing principal of Commonwealth Financial Network, wrote in a note to investors.

The stock market is likely to continue its upward march as the economy approaches the elusive pre-pandemic normal, McMillan said. But supply chain problems, labor shortages and continued inflation concerns could periodically rattle markets on the way up.

“The story of the second half of 2021 will be how quickly and successfully the economy finds its way through the maze of those problems,” McMillan wrote. “We will do so — and will be approaching normal by the end of the year. But it will be a complicated process, filled with wrong turns and setbacks.”