Stocks Climb to Start May

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Investors piled into shares of economically sensitive companies and pulled back from technology stocks Monday, leading to a divergence in major indexes.

The Dow Jones Industrial Average jumped about 290 points, or 0.9%, in recent trading, putting the blue-chip index within striking distance of closing at a new all-time-high. The S&P 500 advanced 0.4% to kick off May after closing out its best month since November.

The Nasdaq Composite, in contrast, pulled back, falling 0.3% after opening higher. Mega-cap technology companies including Amazon.com,

Netflix

and

Facebook

weighed on the technology-heavy index.

Investors have been heartened lately by signals that economic growth is picking up in most developed countries, with companies’ earnings growth and positive outlook adding to the optimism.

At the same time, money managers are assessing the continued spread of Covid-19 in many parts of the world and trying to gauge the outlook for inflation, which could erode the value of investment returns. Rising inflation tends to be particularly problematic for growth and tech stocks, in part because their earnings are expected to come further in the future.

“There is a thin balance between all the positives such as earnings momentum, the reopening, the rollout of vaccines and some limiting factors like [high] valuations and inflation perspectives,” said

Luc Filip,

head of private banking investments at SYZ Private Banking. “The market will balance between all these positives and negatives, but we believe the positives will outweigh the negatives.”

U.S. manufacturing data due out Monday will offer fresh insights into the pace of economic recovery.



Photo:

Alisha Jucevic/Bloomberg News

New data released Monday morning by the Institute for Supply Management showed that a key gauge of the health of the U.S. manufacturing sector missed expectations but remained in growth mode. The ISM Manufacturing Report on Business PMI registered 60.7 in April, versus expectations of 65.0, according to estimates from a survey compiled by The Wall Street Journal. Demand expanded, the data showed. But wide-scale shortages of basic materials, rising commodities prices and difficulties in transporting products continued to affect the industry, the report showed.

A second survey also released Monday by

IHS Markit

showed U.S. manufacturing activity grew in April, lifted by quick expansion in output and new orders.

Federal Reserve Chairman

Jerome Powell

is scheduled to speak at 2:20 p.m. ET at a virtual conference. Investors are likely to be watching for any fresh insights from Mr. Powell on how the economy is faring.

In corporate news,

Estee Lauder

sank 7.7% after its quarterly revenue came in below analysts’ estimates. In contrast, Moderna climbed about 5.1%. The drugmaker said Monday that it will supply 34 million Covid-19 vaccine doses to an international program that distributes the shots to developing countries.

Tesla edged down 3.3% following a news report that its European battery gigafactory will be delayed by six months.

Among the S&P 500’s 11 sectors, the energy and materials groups posted the biggest gains. Companies including Halliburton, Gap and FedEx jumped, with each rising 4.3% or more.

In contrast, Amazon tumbled 1.7%, while Netflix lost 1.2%. Facebook fell 0.7%.

In bond markets, the yield on the 10-year Treasury note ticked down to 1.612%. It ended last week at 1.632%, posting its biggest weekly rise since mid March.

Overseas, the pan-continental Stoxx Europe 600 rose 0.6%.

Hong Kong’s Hang Seng Index fell 1.3%. India’s Sensex index declined 0.6%, after losing 1.5% last month. Markets in Japan and China were closed for a holiday.

In recent years, purchasing managers indexes have become important indicators of where the global economy might be heading. But in the current slowdown, where small businesses were some of the hardest hit, PMI numbers may not be telling the full story. WSJ explains. Photo: Getty Images (Video from 7/1/20)

Write to Anna Hirtenstein at anna.hirtenstein@wsj.com and Caitlin McCabe at caitlin.mccabe@wsj.com

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