Stocks Start Second Half on an Upswing

Rallying energy and financial stocks lifted the Dow Jones Industrial Average on the first day of the third quarter.

Trading was quiet in Monday's session, which was shortened ahead of the July 4 holiday. Just 3.8 billion shares changed hands, marking the lowest volume day of the year.

Stocks climbed to records in the first half of the year, but many investors and analysts expect muted gains over the next several months. Recent weakness in inflation data, higher-than-average stock valuations and volatile commodity prices threaten to stall the stock rally in the second half of 2017, many say.

The pace of earnings growth is also expected to moderate in the second quarter after companies posted their best results in nearly six years earlier this year.

"The big question for markets is now: Is this soft patch in the U.S. behind us?" said Michael Herzum, head of multiasset strategy at Union Investment, whose firm has taken a more cautious stance heading into the second half of the year. "We think the bulk of the earnings upgrades are now done," Mr. Herzum said.

The Dow industrials jumped 129.64 points, or 0.6%, to 21479.27 on Monday. The S&P 500 rose 5.60 points, or 0.2%, to 2429.01 and the Nasdaq Composite lost 30.36 points, or 0.5%, to 6110.06.

Energy shares led gains in the S&P 500 as oil prices rebounded. Dow component Chevron rose $1.37, or 1.9%, to $106.30 and Exxon Mobil added 1.37, or 1.7%, to 82.10, while U.S. crude jumped 1.5% to $46.74 a barrel, on course for its eighth consecutive session of gains.

Financial stocks advanced with government bond yields, sending Goldman Sachs Group and J.P. Morgan Chase up more than 2% apiece. The yield on the 10-year U.S. Treasury note rose to 2.348%, according to Tradeweb, from 2.298% on Friday. Higher rates typically support banks' net-interest margins, a key measure of lending profitability.

Bond yields have risen sharply in recent sessions on growing expectations that global central banks, including the European Central Bank and the Bank of England, could move away from ultra-accomodative monetary policy.

"Our perspective is we're going to have pretty modest growth and modest inflation" in the second half of the year, said Greg Woodard, who directs portfolio strategies at Manning & Napier. "We see rates grinding a bit higher but [monetary] conditions are going to remain fairly accommodative around the world," Mr. Woodard said.

A flurry of manufacturing readings added to confidence in the health of the world economy, putting pressure on government bonds.

U.S. Treasurys extended losses after the Institute for Supply Management said U.S. factory activity picked up in June. Earlier, data also showed eurozone factories posting their busiest month in more than six years in June, and signs of momentum in Japan and China.

The Stoxx Europe 600 rose 1.1%, snapping a four-session losing streak. Shares of banks, energy companies and miners led gains in Europe, which typically indicates confidence in the strength of the global economy and the outlook for commodities.

Earlier, stocks in Asia mostly inched higher. Hong Kong's Hang Seng added 0.1% after its best first-half performance since 2009, while Japan's Nikkei Stock Average was also 0.1% higher as a central bank survey showed business confidence among the nation's large manufacturers strengthened to its highest level in more than three years in the second quarter.

The Shanghai Composite inched up 0.1% after a private gauge of China's factory activity rebounded in June to show an expansion.

Write to Riva Gold at riva.gold@wsj.com and Akane Otani at akane.otani@wsj.com

Rallying energy and financial stocks lifted the Dow Jones Industrial Average on the first day of the third quarter.

Trading was quiet in Monday's session, which ended early ahead of the July 4 holiday in the U.S.

Stocks climbed to records in the first half of the year, but many investors and analysts expect muted gains over the next several months. Recent weakness in inflation data, higher-than-average stock valuations and volatile commodity prices threaten to stall the stock rally in the second half of 2017, some have said.

"The big question for markets is now: Is this soft patch in the U.S. behind us?" said Michael Herzum, head of multiasset strategy at Union Investment, whose firm has taken a more cautious stance heading into the second half of the year.

The pace of earnings growth is also expected to moderate in the second quarter after companies posted their best results in nearly six years earlier this year.

The Dow industrials jumped 129.64 points, or 0.6%, to 21479.27 on Monday. The S&P 500 rose 5.60 points, or 0.2%, to 2429.01 and the Nasdaq Composite lost 30.36 points, or 0.5%, to 6110.06, weighed down by losses in technology stocks.

Energy shares led gains in the S&P 500 as oil prices rebounded. Dow component Chevron rose $1.97, or 1.9%, to $106.30 and Exxon Mobil added 1.37, or 1.7%, to 82.10. U.S. crude for August delivery jumped 2.2% to $47.07 a barrel, notching its eighth consecutive session of gains -- its longest winning streak since January 2010.

Financial stocks rose with government bond yields, sending Goldman Sachs Group and J.P. Morgan Chase up more than 2% apiece. The yield on the 10-year U.S. Treasury note rose to 2.352% from 2.298% on Friday. Higher rates typically support banks' net-interest margins, a key measure of lending profitability.

Bond yields have risen in recent sessions on growing expectations that global central banks, including the European Central Bank and the Bank of England, could dial back their monetary stimulus.

"Our perspective is we're going to have pretty modest growth and modest inflation" in the second half of the year, said Greg Woodard, who directs portfolio strategies at Manning & Napier.

"We see rates grinding a bit higher but [monetary] conditions are going to remain fairly accommodative around the world," Mr. Woodard said.

A flurry of manufacturing readings added to confidence in the health of the world economy, putting pressure on government bonds. Yields rise as bond prices fall.

U.S. Treasurys extended losses after the Institute for Supply Management said U.S. factory activity picked up in June. Earlier, data also showed eurozone factories posting their busiest month in more than six years in June, and signs of momentum in Japan and China.

The Stoxx Europe 600 rose 1.1%, snapping a four-session losing streak.

Earlier, stocks in Asia mostly inched higher. Hong Kong's Hang Seng added 0.1% after its best first-half performance since 2009, while Japan's Nikkei Stock Average added 0.1% after a central bank survey showed business confidence among the nation's large manufacturers strengthened to its highest level in more than three years in the second quarter.

Write to Riva Gold at riva.gold@wsj.com and Akane Otani at akane.otani@wsj.com

(END) Dow Jones Newswires

July 03, 2017 15:48 ET (19:48 GMT)