By Sue Chang and Ellie Ismailidou, MarketWatch

Oil jumps to 7-month high, helping energy shares

U.S. stocks climbed for a second session on Wednesday, supported by energy and materials shares, after logging their best daily gains in nearly three months on Tuesday.

A jump in oil prices following a Tuesday report which showed a decline in crude inventories (http://www.marketwatch.com/story/crude-oil-rockets-to-near-50-a-barrel-as-data-hints-at-us-supply-drop-2016-05-25) helped lift energy and materials stocks.

Oil futures held on to their gains Wednesday, trading near a seven-month high after the U.S. Energy Information Administration reported (http://www.marketwatch.com/story/oil-holds-gains-after-eia-reports-42-million-barrel-fall-in-us-crude-supplies-2016-05-25) that U.S. crude supplies declined by 4.2 million barrels in the week ended May 20.

The S&P 500 rose 14 points, or 0.7%, to 2,090 as energy and materials sectors both gained more than 1%, The utilities sector was the only sector in negative territory, down 0.4%.

The Dow Jones Industrial Average added 156 points, or 0.9%, to 17,861, led by a 2.3% jump in Goldman Sachs Group Inc. (GS), followed by a 1.9% rise in J.P. Morgan Chase & Co.(JPM) shares.

The Nasdaq Composite was up 30 points, or 0.6%, to 4,892.

Several key technical indicators are suggesting that the market has potential to add to its gains, according to Andrew Adams, technical analyst at Raymond James, who shared the following chart in a note.

"My favorite breadth indicator, the NYSE Common Stock Only Advance/Decline Line, had a good day as well yesterday to break above the downtrend line that had been keeping it in check. This helps support our view that Tuesday may have been the beginning of something real," he said.

Growing expectations that the Federal Reserve might raise interest rates as early as next month buoyed financial companies' shares, as higher interest rates tend to boost banks' balance sheets.

"A big part of this rally is central-bank induced," said Quincy Krosby, market strategist at Prudential Financial. The fact that financials are leading the advance implies, according to Krosby, that investors are betting that a potential rate hike will push the 10-year benchmark Treasury yield higher, boosting bank profitability.

But overall, it is typically thought that "the market always prefers a rate cut to a rate hike," Krosby said, so in order for this rally to continue in a sustainable way, there needs to be "broad market participation."

Some analysts pointed to nascent signs of such broad participation. For instance, the recent rally in the technology sector has been "much more broad based than what we saw during most of the last two years," said Tim Anderson, managing director at MND Partners, in emailed comments.

Strong financial and tech stocks underpinned Tuesday's sharp advance. The main difference from past rallies, according to Anderson, is that dozens of technology stocks have been part of the Nasdaq rally since last Thursday, including many sub groups that have been languishing for many quarters.

Other strategists pointed to a shift in broader investor sentiment.

"Traders continue to view the [Federal Reserve] moving toward an interest-rate increase as a positive sign that the U.S. economy is strong and overseas economic risks are fading, setting up a positive environment for corporate earnings growth," said Colin Cieszynski, chief market strategist at CMC Markets, in emailed comments.

The surge in risk appetite, according to Cieszynski, weighed on gold futures as capital continued to leave defensive havens, like gold and U.S. Treasurys for more aggressive positions.

Still, some analysts appeared worried at the market's strong gains ahead of a potential interest-rate hike that could come as soon as June.

"I really am trying to get my head around the newfound euphoria," said David Buik, market commentator for Panmure Gordon & Co. "Yes, I get the learning to live with a 25-basis-point U.S. Fed rate hike in June or July ... but I wonder!"

Other markets: European stocks were advancing, while Asian markets mostly closed higher (http://www.marketwatch.com/story/asian-stocks-boosted-by-strong-oil-prices-upbeat-us-data-2016-05-25). Gold futures were losing ground, and the ICE U.S. Dollar Index inched lower.

Read:Citi expects Brent crude to reach $50 a barrel in the third quarter (http://www.marketwatch.com/story/new-age-for-oil-prompts-citi-to-raise-2017-forecast-to-65-2016-05-24)

Economic news: Investors shrugged off a report that showed the nation's trade deficit widened in April (http://www.marketwatch.com/story/us-goods-deficit-shows-higher-trade-gap-in-april-2016-05-25), as imports increased faster than exports.

At 1:30 p.m. Eastern, Dallas Fed President Steven Kaplan has been slated to take part in a moderated question-and-answer session. None of the speakers is currently a voting member of the Fed.

Individual movers: Luxury jewelry seller Tiffany & Co.(TIF) fell 2% after its quarterly revenue and outlook disappointed (http://www.marketwatch.com/story/tiffanys-stock-rocked-by-sales-miss-downbeat-outlook-2016-05-25), and clothing retailer Express Inc.(EXPR) tumbled 11% following its quarterly report (http://www.marketwatch.com/story/express-cuts-outlook-after-revenue-flattens-2016-05-25).

Shares in Hewlett Packard Enterprise Co.(HPE) surged 9.5%, on track for their best daily gain in 11 weeks. The company late Tuesday said it will spin off its enterprise services business and merge it (http://www.marketwatch.com/story/hewlett-packard-enterprise-surges-on-move-to-merge-services-unit-with-csc-2016-05-24) with Computer Sciences Corp.(CSC)

Read:Hewlett Packard Enterprise -- another day, another spinoff? (http://www.marketwatch.com/story/hewlett-packard-enterprise-another-day-another-spinoff-2016-05-24)

Microsoft Corp. shares (MSFT) gained 1.1% after the tech giant early Wednesday said it will lay off 1,850 workers (http://www.marketwatch.com/story/microsoft-to-layoff-1850-from-smartphone-business-2016-05-25) from its ailing smartphone business.

Alibaba Group Holding Ltd.'s (BABA) stock dropped 3.5% after the China-based ecommerce giant disclosed in a filing that it was being investigated by the U.S. Securities and Exchange Commission. (http://www.marketwatch.com/story/alibabas-stock-slumps-after-disclosure-of-sec-probe-into-singles-day-data-consolidation-practices-2016-05-25)

(http://www.marketwatch.com/story/alibabas-stock-slumps-after-disclosure-of-sec-probe-into-singles-day-data-consolidation-practices-2016-05-25)--Victor Reklaitis contributed to this report.

 

(END) Dow Jones Newswires

May 25, 2016 12:17 ET (16:17 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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