Dow Rebounds After Biggest One-Day Decline Since October

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U.S. stocks rebounded Tuesday as investors rushed in to buy shares that had been knocked down in Monday’s dramatic selloff.

The rally suggested that even as the rapidly spreading Delta variant of the coronavirus casts a shadow over the economic outlook, many investors still see the stock market as the best place to put their money.

The Dow Jones Industrial Average climbed 568 points, or 1.7%, after falling more than 700 points Monday in its worst session since October. The S&P 500 gained 1.5%, while the tech-heavy Nasdaq Composite added 1.6%.

Stocks, bond yields and oil prices had fallen Monday as investors focused on the potential for the Delta variant, a jump in inflation and strained U.S.-China relations to weigh on the global economic recovery. An uptick in consumer prices could lead the Federal Reserve to dial back its easy money policies sooner than anticipated.

Even so, the three major stock indexes each closed Monday down only about 3% from their all-time highs, underscoring the strength of the rally that powered equity markets in the first half of the year.

The S&P 500 has rallied 15% in 2021, and the Dow industrials have added 13%.

“A lot of our client conversations have really been people trying to look to find time to put money to work,” said Mike Stritch, chief investment officer at BMO Wealth Management. “People step in, and they don’t want to get caught missing an opportunity to buy at a few points lower.”

All 11 sectors of the S&P 500 rose Tuesday, led by the financial and industrial groups. Travel stocks were among the top performers, with Norwegian Cruise Line Holdings climbing 7.2% and American Airlines Group gaining 6.1%.

One factor that could support continued gains by stocks: brightening expectations for corporate earnings. Forecasts have risen since earnings season kicked off in earnest last week, with analysts now projecting that profits for S&P 500 companies rose 71% in the second quarter from a year earlier—a time when much of the economy had been brought to a standstill by the pandemic.

“You really need the fundamentals, the earnings, to really pick up, and that’s really what we’re seeing,” said Larry Adam, chief investment officer at Raymond James. “If you get that momentum, then people get less worried about the valuations.”

Stocks have been trading at higher multiples of their projected earnings than the long-term average. If profits continue to beat expectations, that would make shares look less expensive at current prices.

Among individual stocks, HCA Healthcare shares climbed 15% and were on pace for a new all-time high after the healthcare operator logged a sharp rebound in revenue for the second quarter and raised its earnings forecast.

In bond markets, the yield on the benchmark 10-year U.S. Treasury note edged up to 1.210%, after dropping to 1.181% Monday in its largest one-day decline since March. Yields rise as bond prices fall.

Oil prices edged higher after tumbling a day earlier on fears that Covid-19 could again curb energy demand. Brent crude rose 0.8%, after dropping 6.8% Monday in its worst daily percentage performance since March.

“We sometimes forget that when we’ve had periods of very strong performance and low volatility, small bumps in the market do feel like they are more than they are,” said Shaniel Ramjee, a multiasset fund manager at Pictet Asset Management.

Cryptocurrencies extended their declines, with bitcoin dropping below $30,000 for the first time in almost a month. The digital currency declined 3.6% to $29,684 from its level at 5 p.m. ET the previous day, according to CoinDesk.

Overseas, the pan-continental Stoxx Europe 600 rose 0.5%. In Asia, most major benchmarks extended Monday’s declines. The Shanghai Composite Index lost 0.1% and Hong Kong’s Hang Seng tumbled 0.8%.

The S&P 500 and Dow Jones Industrial Average gained Tuesday.

Photo: Richard Drew/Associated Press

Write to Karen Langley at karen.langley@wsj.com and Anna Hirtenstein at anna.hirtenstein@wsj.com

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