- The Dow Jones Industrial Average (DJIA) soared on Tuesday.
- Traders are turning up their risk appetite on news of a breakthrough coronavirus antibody treatment.
- California and New York cautiously move to end lockdowns and Trump backs off his China pressure.
A flurry of positive news propelled the stock market higher today. After rallying into the closing bell on Monday, the Dow Jones Industrial Average (DJIA) extended its surge when the market opened on Tuesday.
It’s a welcome bounce after a lackluster start to the month of May. So what’s the catalyst behind today’s rip higher? Well, there are five…
Dow rallies past 24,000
As of 9:40 am ET, the Dow had gained 276.88 points or 1.17% to trade at 24,026.64.
The S&P 500 and Nasdaq enjoyed comparable rallies, advancing 1.2% and 1.43%, respectively.
U.S. stock futures had given back some gains before the markets opened after a German court ruled that the European Central Bank’s quantitative easing (QE) program may be unlawful. The court afforded Christine Lagarde three months to prove the central bank’s actions were proportionate, and make any necessary changes.
Yet the stock market still looks undeniably bullish on Tuesday. Here are the five catalysts powering equity prices higher.
1. Breakthrough coronavirus antibody treatment boosts the Dow
Scientists published a breakthrough report last night which could be a game-changer for the coronavirus outbreak. Researchers claim they’ve created an antibody that can destroy the virus.
The antibody is still in the early stages. It will need to go through strict animal trials, then human trials, before getting the all-clear. But the sheer volume of potential Covid-19 treatments and vaccines is helping buoy the stock market recovery.
2. White House backs down on China tension
Traders took a step back from stocks yesterday as it looked like Trump might re-ignite the trade war. The president accused China of covering up the coronavirus and threatened to kill the trade deal.
But the White House struck a softer tone late last night, assuring investors that Washington isn’t looking to punish Beijing for the outbreak. Deputy national security advisor Matthew Pottinger confirmed:
The U.S. isn’t looking at punitive measures here.
Still, that doesn’t mean the threat has disappeared. One former White House trade negotiator, Clete Willems said tensions were icy.
I do think we have to be honest and call this what it is and this is the start of a new Cold War.
3. New York and California slowly re-open
Perhaps the biggest boost for the Dow Jones this morning comes from California and New York state governors. Newsom and Cuomo outlined plans to tentatively ease the lockdowns in their respective states. Cuomo outlined a four-phase blueprint for coming out.
[Lockdowns are] not a sustainable situation… You can do it for a short period of time, but you can’t do it forever.
The state of New York will remain in lockdown until May 15th. But after that, Cuomo will phase in economic activity. Construction and manufacturing will return in phase one alongside some curb-side retail. Professional services, restaurants, bars, and eventually cinemas will follow.
4. Oil prices point to economic recovery
The oil price entered a death spiral last month. The front-month contract for crude oil futures tumbled below zero for the first time in history as demand dried up. But Giovanni Staunovo at Swiss bank UBS says the worst is almost over.
We would describe the current environment as the darkest hour just before the dawn.
Next month is beginning to look a little rosier. June’s crude contract jumped 10% overnight, marking five-straight days of gains. Investors are pricing in stronger demand as countries exit lockdowns.
5. Goldman Sachs confirms economic bottom
It’s been a brutal two months for the global economy. Manufacturing has ground to a halt, businesses are frozen, and more than 30 million are newly unemployed in the U.S. alone.
But it can’t get any worse, according to Goldman Sachs analysts.
Economic activity has probably bottomed now.
The bank is now expecting a strong bounce in GDP for the second half of the year. It seems investors are beginning to price in this recovery. As we know, stock markets tend to sniff out a recovery and hit a bottom much earlier than the broader economy.