US Stocks Look to Follow Up on Highest Gains in 2 Months

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U.S. stocks registered further gains on Tuesday, buoyed by rising crude oil prices and favorable housing data for the month of April. The S&P 500 Index (INDEXCBOE:SPX) led U.S. stocks higher with all its 10 sectors moving north and the index registering its highest single day ascent in over two months.

Investors appear to be coming to terms with the reality that the Federal Reserve will set higher interest rates this year. Uncertainty over the direction of interest rates drove investors to safe haven assets such as gold at the expense of riskier investments. But the return to stocks as signaled by Tuesday’s development suggests growing hope that the Fed’s upward rates review will not hurt the price of stocks.

Rising oil prices have also added to optimism about the health of the global economy. The U.S. crude oil and iPath S&P GSCI Crude Oil Total Return (NYSEARCA:OIL) edged up 1.1%, with oil at $48.62 a barrel.

Dow Jones Industrial Average (INDEXDJX:.DJI) added 213.12 points yesterday, or 1.2%, to close the day at 17706.05. Microsoft Corporation (NASDAQ:MSFT), Intel Corporation (NASDAQ:INTC) and Cisco Systems, Inc. (NASDAQ:CSCO) led the gains in the Dow. The S&P 500 gained 28.02 points for 1.4% to 2076.06, marking its highest jump in more than two months.

All the 10 sectors in the S&P 500 moved higher, but among the highest risers were financial and technology sectors. The S&P 500’s financial stocks gained 1.5% and the technology component jumped 2.1%. Morgan Stanley (NYSE:MS) and JPMorgan Chase & Co. (NYSE:JPM) were among the top bank gainers.

The gains of technology shares also lifted the tech-weighted NASDAQ Composite (INDEXNASDAQ:.IXIC), which edged up 2%, thus registering its largest gain in more than two months.

Higher interest rates favorable for banks

The growing appetite for bank stocks as the Fed’s interest rate hike nears can be attributed to speculations that lenders stand to gain from higher interest rates. When interest rates move up, the gulf between the interest banks charge on loans and what they pay on deposits widens to the advantage of the lenders. Investors are also speculating that the technology industry will benefit from a healthy financial industry, partly because of increased spending on automation, aided by higher minimum wage legislation, and other technology solutions.

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