Dow rallies 500 points as Wall Street cheers on the economy reopening, JPMorgan jumps

Stocks surged on Tuesday, adding to their strong gains from last week, as optimism grew about the reopening of the economy and a potential coronavirus vaccine.

The Dow Jones Industrial Average gained 529.95 points, or 2.2%, to close at 24,995.11. The 30-stock average briefly traded above 25,000 for the first time since early March before closing just below the mark. 

The S&P 500 rallied 1.2% to 2,991.77 . The index traded above 3,000 for most of the session, but fell back below that level in the final minutes of trading. The Nasdaq Composite lagged, rising just 0.2% to 9,340.22.

The major averages cut their gains in the final hour of trading after a Bloomberg News report said the U.S. was considering sanctions on Chinese firms and officials over the situation in Hong Kong. That report cam after White House National Security Advisor Robert O'Brien said Sunday the U.S. will likely impose sanctions on China if Beijing implements national security law that would give it greater control over autonomous Hong Kong.

Here's what market participants were watching:

• The S&P 500 exceeded its 200-day moving average for the first time since March 5, but failed to close above the key level. Many technical analysts look at that moving average as a sign of the long-term trend. Rising above it could signal a change in long-term trend from bearish to bullish.
• American biotech company Novavax said Monday it started the first human study of its experimental coronavirus vaccine. The company said it expects initial results on safety and immune responses in July. Last week, another biotech company, Moderna, reported positive development on its vaccine trial where all 45 participants had developed coronavirus antibodies. There are 10 vaccines in clinical evaluation and 114 in pre-clinical evaluation, according to a running tally by Fundstrat.
• Economic activity continued to pick up as states begin opening up their economies. New Jersey Gov. Phil Murphy said professional sports teams in the state can resume training and competition, with their leagues' approval.
• Some of the biggest gainers were directly tied to the reopening. Carnival shares jumped 12.6%. MGM Resorts climbed 11%. United Airlines and Southwest Airlines rose more than 12% each.
• Bank stocks got a boost amid the optimism over the economic reopening. Citigroup and Wells Fargo were both up more than 8.6% while Bank of America and JPMorgan Chase advanced over 7% each. JPMorgan shares hit their session highs after CEO Jamie Dimon said the bank is "very valuable" at current prices. 

"The virus appears to be coming under control," said Bruce Bittles, chief investment strategist at Baird, in a note to clients. "Lockdowns have been relaxed and we have not seen a resurgence in the virus."

"A return to a bull market in stocks and a return to economic growth are dependent in large part upon the containment of the virus which will allow businesses to re-open and consumers to resume their spending habits," said Bittles. "The market seems to be pricing in a quick economic recovery (V-shape) which would help explain the recent rally."

Data out Tuesday also reinforced the belief that the economy has hit its bottom amid the pandemic. A measure of consumer confidence jumped to 86.6 this month from 85.7 in April, according to the Conference Board. Economists polled by Dow Jones expected consumer confidence of 82.3 in May. 

Meanwhile, new home sales in April also topped estimates. Sales of new U.S. single-family homes increased by 623,000 last month, beating estimates of 490,000, according to Dow Jones.

Southwest got a boost from a UBS upgrade to buy. The analyst said the airline has a "clearer path for domestic travel recovery." Separately, Macy's said it has seen "greater demand than we expected" in its reopened stores. Macy's shares gained 18.4%.

"A lot of this has evolved into a reopening story that's been able to piggyback off some positive news from a therapeutics standpoint," said Keith Buchanan, portfolio manager at GLOBALT. But "there are definitely questions about whether we are pricing in a return to a normal that, scientists are warning, could have a resurgence in the virus."

President Donald Trump tweeted about Tuesday's rally, saying: "Stock Market up BIG, DOW crosses 25,000. S&P 500 over 3000. States should open up ASAP. The Transition to Greatness has started, ahead of schedule. There will be ups and downs, but next year will be one of the best ever!"

tweet

The moves Tuesday followed a solid week for Wall Street that saw the 30-stock Dow rise 3.3%, posting its best weekly performance since April. The S&P 500 and Nasdaq also climbed more than 3% last week. 

The S&P 500 ended Tuesday's session up more than 36% from a March 23 low.

"Next month we will know Bank stress test results; whether oil prices are a bounce or something more sustained; and if we have moved out of COVID season or into a second wave," Christopher Harvey, Wells Fargo's head of equity strategy, said in a note. "If things break positively, we would expect to see a healthy rotation toward cyclicals, smaller caps, and value stocks."

The number of coronavirus cases in the U.S. topped more than 1.6 million as deaths rose to more than 98,000, a tally from Johns Hopkins University showed as of Monday. 

Subscribe to CNBC PRO for exclusive insights and analysis, and live business day programming from around the world.

Correction: This story has been updated to reflect the S&P 500 broke above its 200-day moving average for the first time since March 5.