Tech Stocks Power Market Rally

By Anna Isaac and Alexander Osipovich

U.S. stocks jumped Monday, with the technology-heavy Nasdaq Composite poised to notch another record as investors' infatuation with tech shares continued.

The Dow Jones Industrial Average climbed 535 points, or 2.1%, in afternoon trading. The S&P 500 rose 1.4%, trying to return to positive territory for the year, while the Nasdaq was up 1.3%--on pace for its 28th record close of the year.

Stocks like Amazon.com, Apple and Tesla posted strong gains Monday, boosting the Nasdaq. The index has risen about 10% over the past two weeks, while the Dow is still more than 2,000 points below the all-time highs it reached in February, before the coronavirus-fueled selloff.

Amazon.com rose 2.3%, while Apple was up 2.8%. Tesla shares rallied 7.7% and have climbed in nine of the past 10 sessions. The electric-car maker now has a greater market capitalization than JPMorgan, Procter & Gamble and UnitedHealth Group.

Investors and traders are watching the corporate earnings season for any signals about the shape and pace of economic recovery following the disruption caused by the pandemic. Economists generally agree that the quarter ended in June was likely the worst of the downturn, but the extent of the damage is still unclear. The rise in U.S. coronavirus cases has prompted renewed restrictions on business and social gatherings in some areas, and threatens to slow down the economy's revival.

"There's some optimism about the tone of the upcoming earnings," said Jane Foley, senior foreign exchange strategist at Rabobank. "People have written off the second quarter, but they have high expectations for the third quarter."

Shares of PepsiCo rose 1.7% as the food and beverage giant unofficially kicked off earnings season for major U.S. companies. PepsiCo posted better-than-expected revenue for the latest quarter as it made less in its main beverage segment, but saw snacks sales rise as Covid-19 shelter-in-place measures and closures eased during the period.

"The environment has remained volatile and much uncertainty remains about the duration and long-term implications of the pandemic," Chairman and Chief Executive Ramon Laguarta said.

Wall Street banks, airlines and other economic-bellwether companies are scheduled to release earnings this week. Earnings for S&P 500 companies are expected to decline nearly 45% compared with the second quarter of 2019, which would mark the steepest year-over-year drop since 2008, according to FactSet. That has set a low bar for earnings expectations, which has largely been baked into share prices, analysts said.

"The markets are looking out six months from now, and saying that things will be a whole lot better by then," said Randy Frederick, vice president of trading and derivatives at Charles Schwab. He cautioned that uncertainty about the pandemic or the upcoming U.S. election could still sour the market's rally in the coming months.

Total U.S. coronavirus cases topped 3.3 million on Monday and the nation's death toll exceeded 135,000, according to data compiled by Johns Hopkins University. Thirty-two states had increases of at least 10% in cases over the past week, prompting public-health experts to warn it may become difficult to halt the spread.

"The rising numbers of cases in the U.S. are just not generating as much fear as they had before," said Seema Shah, chief strategist at Principal Global Investors. "The death rates aren't rising as quickly as infection rates. It suggests that the virus is being managed better than before or it's more focused on the younger generation, suggesting a less severe economic reaction."

All 11 of the S&P 500's sectors were in positive territory Monday, led by health-care and consumer-discretionary stocks. Shares of Olive Garden owner Darden Restaurants, which has been hurt this year by coronavirus-related cafe closures, gained 5% after it was upgraded by analysts at JPMorgan Chase.

Shares of chip maker Maxim Integrated jumped 11% after Analog Devices said it would buy its rival in an all-stock transaction. The deal values the combined companies at more than $68 billion, according to their own valuations. Analog shares were down 4.1%.

Overseas, the pan-continental Stoxx Europe 600 rose 1%. Most major Asian markets ended the day sharply higher, with the Shanghai Composite Index rising 1.8%.

The Shanghai index has climbed nearly 13% this year, making it one of the world's best-performing major indexes. Growing conviction that China's economy is recovering from the coronavirus has encouraged investment in Chinese stocks from foreign institutions and the millions of individual investors who dominate trading in China.

Vincent Wen, an investment manager at KCG Securities Asia, said the recent Chinese rally has been too fast, driven by official messages and the prospect of easy monetary policy.

"Fundamentally speaking, the real economy remains weak and the path to recovery will be bumpy," Mr. Wen said.

The yield on the 10-year U.S. Treasury ticked up to 0.645%, from 0.633% on Friday, as investors sold government bonds. Yields move in the opposite direction from prices.

Joanne Chiu contributed to this article.

Write to Anna Isaac at [e-mail] and Alexander Osipovich at [e-mail]