Stocks Notch Best Day in 10 Weeks, Nasdaq Up 2.5%: Markets Wrap

(Bloomberg) -- Stocks had their biggest rally in about 10 weeks as several strategists said the recent explosion of speculative buying won’t derail the bull market in equities.

In a broad-based advance led by retailers and tech companies, the S&P 500 rebounded from last week’s rout as the Nasdaq 100 jumped 2.5%. Amazon.com Inc. and Google’s parent Alphabet Inc., which are set to report earnings Tuesday, climbed at least 3.6%. Tesla Inc. soared after an analyst more than doubled his price target on the electric-car maker, saying “fireworks aren’t over.” GameStop Corp. tumbled as bearish investors appeared to cover their positions while retail traders flocked to other corners of the market. Silver climbed to an almost eight-year high.

Read: GameStop Short Interest Plunges in Sign Traders Are Covering

The battle between retail traders and hedge funds is unlikely to cause a significant setback for markets, according to JPMorgan Chase & Co. Major drawdowns have usually occurred when there’s a worse outlook for growth, as well as signs of overvaluation beyond price-earnings ratios and credit spreads, strategists led by John Normand wrote. Few markets show signs of extraordinary price momentum or excessive leverage, according to them.

“The retail versus hedge fund conflict unfolding currently should be much less severe than the roughly 10% drops that have been occurring almost annually for the past two decades,” JPMorgan strategists noted. “Our bubble tracker based on extreme price momentum, valuations and investor leverage isn’t flashing red at the asset class level, even if it might at the security level.”

While stretched valuations make markets vulnerable to a correction, investors should consider using “volatility opportunistically to select stocks in quality franchises with strong valuation support and cyclical leverage,” according to Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management.

“Patience, more than greed, is likely to be rewarded,” she wrote in a note to clients. “Our view remains constructive.”

These are some key events coming up:

• Earnings season is full steam ahead as companies report results, including Alibaba, GlaxoSmithKline, Ferrari, Exxon Mobil, BNP Paribas and Yum! Brands.
• The Reserve Bank of Australia’s policy decision comes Tuesday.
• Wednesday sees the EIA crude oil inventory report.
• The Bank of England sets rates on Thursday and an Indian central bank policy decision comes then too.
• The U.S. January payrolls report is due Friday, providing a first look at hiring in 2021.

These are some of the main moves in markets:

Stocks

• The S&P 500 surged 1.6% as of 4 p.m. New York time.
• The Stoxx Europe 600 Index climbed 1.2%.
• The MSCI Asia Pacific Index increased 1.9%.

Currencies

• The Bloomberg Dollar Spot Index climbed 0.4%.
• The euro sank 0.6% to $1.206.
• The Japanese yen depreciated 0.3% to 104.95 per dollar.

Bonds

• The yield on 10-year Treasuries rose less than one basis point to 1.07%.
• Germany’s 10-year yield climbed less than one basis point to -0.52%.
• Britain’s 10-year yield dipped one basis point to 0.321%.

Commodities

• West Texas Intermediate crude jumped 2.8% to $53.68 a barrel.
• Gold rose 0.7% to $1,860.51 an ounce.
• Silver climbed 7.2% to $28.92 per ounce.

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