Investors Jump Back Into Risky Assets -- WSJ

By Riva Gold and Alexander Osipovich Features Dow Jones Newswires

Dow industrials gain 216 points as 'fear gauge' tumbles 26%; gold and bonds drop

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Global stock markets rallied after a centrist candidate won the first round of France's presidential election, defusing some of the political tension that had been weighing on share prices.

The Dow Jones Industrial Average rose 216.13 points, or 1.1%, to 20763.89. The S&P 500 jumped 25.46, or 1.1%, to 2374.15, while the Nasdaq Composite added 73.30, or 1.2%, to a record 5983.82.

All three indexes notched their biggest gains since March 1. France's CAC 40 posted its largest one-day percentage jump -- 4.1% -- in nearly five years, and Germany's benchmark DAX index reached a fresh high.

Other risky assets, such as emerging-markets currencies and junk bonds, also rallied.

"The market is enjoying a risk-on trade," said Quincy Krosby, a market strategist for Prudential Financial.

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Traders sold assets perceived as relatively safe, such as gold, the Japanese yen and government bonds. That reversed a trade that had been gaining momentum for much of this year as political risks in North Korea, the Middle East and France began to pile up.

The CBOE Volatility Index, or VIX, a measure of anticipated stock-market volatility sometimes called the "fear gauge," dropped 26% -- its largest one-day fall since 2011.

French independent centrist Emmanuel Macron prevailed on Sunday, winning the first round with nearly 24% of the vote. He will face off on May 7 in the election's second round against National Front leader Marine Le Pen, who has campaigned to take France out of the euro and rattled global markets. Opinion polls Sunday suggested Mr. Macron would win a head-to-head contest.

"It gives a lot of confidence to the market that we have a good feel for the outlook in France and to a large extent puts to bed the Frexit prospect," said Christopher Dyer, director of global equity at Eaton Vance, noting the outcome should increase appetite for borrowing and investment in Europe. "European banks should be prime beneficiaries of policies that are pro-growth, pro-stimulus and not protectionist in nature," he said.

Bank shares rallied around the world. Banks in the Stoxx Europe 600 rose 4.8% and the KBW Nasdaq Bank Index of large U.S. commercial lenders climbed 2.5%. J.P. Morgan Chase rose $2.98, or 3.5%, to $87.50, while Goldman Sachs added 6.36, or 2.9%, to 223.22. Combined, the two added roughly 64 points to the Dow industrials.

Government bonds slid in the U.S., Germany, the U.K. and Japan. The yield on the 10-year U.S. Treasury rose to 2.275%, from 2.234% Friday. Yields rise as bond prices fall.

Gold for April delivery lost 0.9% to $1,275.80 an ounce, in the largest one-day decline since early March.

The euro gained 1.3% to $1.0868, for the largest gain since last June.

There is a busy week of earnings ahead, with companies such as Caterpillar, McDonald's, Microsoft, Amazon.com and Exxon Mobil set to report quarterly results.

A strong series of reports could give the U.S. stock market the jolt it needs to break out of its recent trading range, said Philip Blancato, president and chief executive of Ladenburg Thalmann Asset Management. "For it to go substantially higher, you need a good earnings season," he said.

But investors' enthusiasm could be tempered by the looming deadline to avoid a U.S. government shutdown and other policy issues, analysts said.

President Donald Trump has ordered White House aides to speed up work on drafting a tax plan, slashing the corporate rate to 15% and prioritizing tax cuts over attempts to avoid increasing the deficit, The Wall Street Journal reported Monday.

Earlier, stocks In Asia mostly moved higher following the French election result despite a drop in Shanghai-listed stocks. Japan's Nikkei 225 index rose 1.4%, while Hong Kong's Hang Seng Index added 0.4%. The Shanghai Composite Index fell 1.4% in its worst day this year.

Write to Riva Gold at riva.gold@wsj.com and Alexander Osipovich at alexander.osipovich@dowjones.com

(END) Dow Jones Newswires

April 25, 2017 02:48 ET (06:48 GMT)