By Anna Isaac, Chong Koh Ping and Paul Vigna
U.S. stocks rallied Monday on hopeful news around a potential coronavirus vaccine, recovering ground following their biggest weekly percentage drop in nearly two months.
The Dow Jones Industrial Average jumped 835 points, or 3.5%, the S&P 500 rose 3.1% and the Nasdaq Composite added 2.5%.
The gains wiped out last week's losses. The S&P 500 shed 2.3% last week after a range of data highlighted the sharp contraction in economic activity across the nation.
European indexes also climbed, with the pan-continental Stoxx Europe 600 gauge rising 3.4%. Most major Asian benchmarks ended the day higher.
Shares of Moderna, a company that has been working on a vaccine for the coronavirus, jumped 21%. The company said it had positive results from early human tests of its vaccine.
"The idea that there has been progress in Moderna's trials but also the more positive news that it looks like coronavirus could be tackled with a vaccine, has helped boost sentiment," said Edward Park, deputy chief investment officer at Brooks Macdonald.
In bond markets, the yield on the benchmark 10-year Treasury edged up to 0.696% from 0.640% Friday. Yields move inversely to bond prices.
The S&P 500's energy, real estate, industrials, materials and financials sectors all rose at least 4%. The energy group climbed 6.7%, driven by an 11% gain in crude-oil futures.
ExxonMobil added 6.8% and Chevron rose 5.7%. Both stocks are still down more than 20% for the year.
As economies emerge from monthslong lockdowns, markets will tend to creep higher, according to Paul Chew, head of research at Phillip Securities in Singapore. But a stronger rally would have to wait until investors believed there is little risk of a big second wave of infections, he said.
Virus-related news has been a bigger driver of stocks than economic data, which are lagging indicators, Mr. Chew said. "Even with better economic numbers, the market won't rejoice," he added.
Monday's rally put the S&P 500 back near the top of a trading range that has been rigid over the past month. The top of the range has sparked selloffs, and the bottom has sparked rallies, said Frank Cappelleri, executive director at brokerage Instinet. "Both sides are somewhat exhausted," he said, adding it would be a strong signal if the index can break higher.
"I'll be interested to see what four o'clock looks like," he said.
Although a vaccine would be welcome, the market for months has been pricing one in, as well as an economic recovery, said ThinkMarkets analyst Fawad Razaqzada. "The way the market has rallied is to suggest the pandemic never happened, and the reality is it has happened," he said. "I think we are getting close to levels where people question if equities are overvalued again."
Federal Reserve Chairman Jerome Powell cautioned Sunday that the U.S. economic recovery could take more than a year. The unemployment rate is likely to keep rising through June and then begin to decrease as businesses reopen, and both the Fed and lawmakers may need to do more to bolster the economy, he said in a broadcast interview.
"If lockdowns might be eased over a longer period of time, that would lead to recovery not really taking place until 2021," Mr. Park said. "The size of the recession in the first half of 2020 is almost being viewed by markets as a curiosity, as investors believe the growth will be at least partially recouped."
"The worse the news gets the more support there will be from central banks, and therefore more liquidity, as far as some investors are concerned, which is why they are buying," Mr. Mould said. "That's not the Main Street view, but it seems like the Wall Street view."
Most equity benchmarks in the Asia-Pacific region rose less than 1%. Japan's Nikkei 225 gained 0.5%, while the Shanghai Composite Index edged 0.2% higher. Australia's benchmark S&P/ASX 200 traded 1% higher.
Fresh data Monday showed Japan's economy, the world's third-largest after the U.S. and China, fell into a recession in the first quarter. The economy shrank an annualized 3.4% in the three months ended March 31 after a 7.3% contraction in the previous quarter. Economists expect Japan's economy to shrink by an annualized 20% or more this quarter as the pandemic keeps tourists away and depresses spending by households and companies.
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