Stocks rally on Wall Street, but markets remain skittish

NEW YORK (AP) — Stocks are rallying worldwide on Tuesday, and Wall Street is heading for its third straight gain after U.S. retail sales rebounded last month by much more than economists were expecting.

The S&P 500 was up 1.8% in midday trading, but trading remains very skittish as coronavirus infections rise in hotspots around the world. After jumping to a 2.8% gain shortly after trading began, the S&P 500 surrendered all but a sliver of it at one point before rallying back.

Tuesday's tenuous rise in the U.S. market followed up on stronger gains for European and Asian stocks. Treasury yields also moved higher in another sign of improving optimism, but trading there was also volatile.

The Dow Jones Industrial Average was up 508 points, or 2%, at 26,271, as of 11:37 a.m. Eastern time, and the Nasdaq composite was up 1.6%.

Retail sales jumped 17.7% from April to May, more than double economists’ expectations, to retrace some of their record-setting plunges in March and April as businesses reopen across the country. The report gives more credence to investor expectations that the economy can pull out of its recession relatively quickly and that the worst may have already passed.

“It really shows that the reopening of the US economy is happening, and the numbers support it,” said Kevin Giddis, chief fixed income strategist at Raymond James.

Economists at IHS Markit said this could be the shortest recession on record for the United States, perhaps just a couple months.

Among other encouraging signs spurring markets worldwide: Researchers in England said they have the first evidence that a drug can improve survival from COVID-19, one that is already widely available and cheap. Analysts also cited a report from Bloomberg News that the White House is preparing a nearly $1 trillion infrastructure plan, but any such proposal is likely to face huge challenges about how to pay for the improvements.

Underpinning all of it is continued aid coming from central banks, which have repeatedly come to the economy’s rescue. The Federal Reserve helped turn markets around on Monday after it said it will buy individual corporate bonds as part of a previously announced program to support lending markets for big employers.

Still, caution continues to run through markets after the remarkable run for stocks in recent months. A record number of fund managers in Bank of America’s monthly survey say the stock market is overvalued following its nearly 40% surge since late March.

The rally has been showing some cracks recently as investors worry that a possible resurgence of infections could push governments to reinstate lockdown measures to slow the spread of the virus. Even if the stay-at-home orders don't come back, renewed fear of the virus could push consumers and businesses to pull back on their spending.

Analysts on Tuesday cited discouraging trends in Florida and Texas. China also locked down a third neighborhood in Beijing to contain a new outbreak that has infected more than 100 people after the country appeared to have largely contained the virus since it first appeared there late last year.

Skepticism has been high about the stock market since it began coming back from its plunge of nearly 34% on worries about the severe, sudden recession created by the coronavirus outbreak. It's now down less than 8%.

Immense, unprecedented aid from the Fed and Capitol Hill helped halt the declines. More recently, investors have been pushing up shares of companies that would benefit from a reopening economy on expectations that activity can rebound as governments relax shutdown restrictions put in place to slow the spread of the virus.

Such stocks were again leading the market on Tuesday. Industrial stocks were generally strong, as were producers of raw materials. Smaller stocks also rose more than the rest of the market, which often happens when investors are getting more optimistic about the economy. The Russell 2000 index of small-cap stocks rose 2.4%.

Nordstrom jumped 12.4% for one of the biggest gains in the S&P 500, leading a group of retailers that stand to benefit if shoppers return to stores.

The yield on the 10-year Treasury rose to 0.74% from 0.70% late Monday, after earlier climbing as high as 0.78%. It tends to move with investors’ expectations for the economy and inflation.

In Asia, Japan’s Nikkei 225 jumped 4.9%, South Korea’s Kospi surged 5.3% and the Hang Seng in Hong Kong rose 2.4%. In Europe, Germany’s DAX returned 3.4%, France’s CAC 40 rose 3% and the FTSE 100 in London added 3%.