Stocks rally after fears of inflation, Fed hikes dampened market

Stocks on Monday bounced back sharply from a week of losses as companies banking on a strong post-coronavirus rebound led the rally.

The Dow Jones Industrial Average closed with a gain of 587 points shortly, ending the day up 1.8 percent. The index ended last week with a loss of 3.5 percent, its worst five-day stretch since October.

The S&P 500 closed with a gain of 1.4 percent and the Nasdaq closed 0.8 percent as declines in tech stocks hindered the composite’s overall gains. 

Companies that stand to benefit from the recovering economy, such as banks, insurers, construction and machinery supply companies, retailers, oil drillers and refiners, and cruise lines led Monday’s bounceback.

The stock market’s turnaround comes after a three-day selloff that began after Federal Reserve officials projected higher annual inflation this year than they had expected in March. Fed officials also said last week that they expect the central bank to begin hiking interest rates at a quicker pace, but not starting until the end of 2022 at the earliest.

“When increasing inflation leads to higher rates, the present value of future growth (and money) is lower. High-flying stocks usually trade on the assumption of growth potential down the road, and higher inflation could reduce this potential,” wrote Callie Cox, senior investment strategist at Ally Invest, in a Friday research note.

Updated at 5:04 p.m.