The Dow Jones leaped to a record high on Wednesday because Wall Street is refusing to price in virtually any negative headlines.
Investors have long plugged their ears to the threat of left-wing Democratic presidential candidate Bernie Sanders.
They’re doing the same with the coronavirus epidemic – even after the Centers for Disease Control and Prevention (CDC) warned Americans to brace for a U.S. outbreak.
Seemingly immune to every threat, all three of the major U.S. stock market indices trended higher on Wednesday.
The Dow Jones Industrial Average (DJIA) led the way, blasting 224.56 points or 0.77% higher to 29,500.90.
The Nasdaq and S&P 500 were less buoyant but still managed to push 0.72% and 0.54% higher, respectively.
Positive risk sentiment helped to support commodities. Crude oil bounced almost 3%, even after OPEC slashed its demand forecast for 2020.
Gold traded virtually flat, even though risk-on moves in equities typically batter haven assets.
Most of the headlines surrounding the Dow are centered on optimism that the rate of the coronavirus’ spread is starting to slow in China. Despite factories reopening and optimistic dialogue coming out of Beijing, the mood in the United States is less sanguine.
Dr. Nancy Messonnier, director of the CDC’s National Center for Immunization and Respiratory Diseases, indicated today that the CDC expects the coronavirus to spread in the U.S.
At some point, we are likely to see community spread in the U.S. or in other countries. This will trigger a change in our response strategy.
Such a bleak official position certainly clashes with the “limited impact” that stock market investors are banking on.
Federal Reserve chair Jerome Powell is one of the chief architects of this sentiment. The Fed has refused to “speculate” on the virus’ impact, despite a gathering pile of worrying economic data building in China and around the world.
Powell doubled down on this during his second day of congressional testimony today, stating:
It’s too uncertain to even speculate about what the level of that will be, and whether it will be persistent, or whether it will lead to a material change in the outlook. But we do expect that there will be some effects.
Another example of the Dow Jones’ glass-half-full mood is the market’s response to the rise of Senator Bernie Sanders as the Democratic frontrunner.
Strong support for Donald Trump and the perceived inability of a “socialist” to win a general election in the U.S. has stock markets utterly refusing to acknowledge the possibility of a Sanders victory.
Yet national polling suggests that Sanders could come out on top of Trump should he secure the nomination.
Why are Dow bulls ignoring this warning?
Because Trump himself was a massive outsider against Hilary Clinton, and faith in these polls has crumbled. Additionally, a strong economy is usually a good indicator of re-election for an incumbent president.
The spectacular rally in the Dow 30 was largely fueled by strong gains in Apple and Boeing stock, both of which advanced more than 1% on the day.
Caterpillar, a reliable indicator of risk appetite, climbed 2.4%. But the beleaguered stock is still down 6% year to date.
Bernie Sanders’ victory in New Hampshire turned into a strange positive for healthcare stocks, and UnitedHealth Group rose 3.9%. Investors appear to believe Trump’s re-election is becoming more likely, making an overhaul of the United States’ healthcare industry less of a threat.