Dow Flatlines While Jamie Dimon Warns of Fed Policy ‘Trap’
The Dow Jones flatlined on Wednesday as the stock market's enthusiasm was cooled by Jamie Dimon's trepidation over a central bank "trap."
Jamie Dimon says investors should be concerned about interest rates. | Source: MANDEL NGAN / AFP
- The promise of further tax cuts from Donald Trump and receding fears over the Wuhan coronavirus in China lifted the stock market on Wednesday.
- The Dow Jones lagged the S&P 500 and Nasdaq as Boeing stock continued to struggle.
- Jamie Dimon and Scott Minerd revealed what risks are lurking in U.S. financial markets.
Donald Trump gave a jolt to the Dow Jones and broader U.S. stock market on Wednesday by teasing more growth-friendly tax cuts.
The Dow was a notable underachiever, though, rallying just a few points as Boeing’s ongoing troubles weighed on the index.
Spoiling the mood even further, JPMorgan Chase CEO Jamie Dimon sounded the alarm on how negative interest rates could harm U.S. stocks.
Dow Grinds Higher as Trump Dangles Tax Cuts & China Virus Panic Eases
Wednesday was a mildly positive day for the major U.S. stock indices, and a Tesla-supercharged Nasdaq led the way with a 0.2% gain.
The S&P 500 secured a 0.06% move to the upside, outpacing a Dow Jones Industrial Average anchored by Boeing.
At last check, the Dow had pared most of its gains, rising just 6.73 points or 0.02% to 29,202.77.
In the commodity sector, crude oil was under severe pressure and plunged 2.8%. A choppy day for the price of gold saw it trading almost perfectly flat as equities moved higher.
The only piece of high-tier economic data out of the U.S. was existing home sales, which beat forecasts at 5.4 million, suggesting the housing market remains healthy.
Cramer Cautions Dow Bulls About China’s Virus Outbreak
Virus outbreak concerns in China began to recede after Beijing stressed its ability to deal effectively with the Wuhan coronavirus.
Dow bulls are pressing on, but fund manager and TV personality Jim Cramer said he’s worried that things aren’t as under control as investors would like to believe.
Concerns about the virus stem from the SARS epidemic in 2003, which had a definite impact on stocks and productivity in the region that spread to global markets.
Trump Dangles Juicy Carrot For Investors & Voters Alike
A clear benefit for the Dow Jones came from Donald Trump, who continues to dangle the juicy carrot of tax cuts for the middle class.
Ignoring concerns about ballooning national debt, the stock market views a Trump victory in 2020 as a significant boon to equities.
That said, the White House hasn’t released any details about what the proposed tax cuts entail.
Jamie Dimon Worries Central Bank Policy ‘Trap’ Could Hurt Stock Market
Pouring a little cold water on Wednesday’s rally, JPMorgan Chase’s Jamie Dimon spoke to CNBC at the Davos summit, revealing that he harbors concerns about ultra-low interest rates.
He warned that this central bank policy “trap” could come back to haunt the stock market:
The only thing I have trepidation about is negative interest rates, QE, and the diversion between stock prices and bond prices and yield and stuff like that… I think it’s very hard for central banks to forever make up for bad policy elsewhere,that puts in them in a trap. We’re a little bit in that trap today with rates so low around the world.
Dimon is not the first person to worry about the global economy’s ability to extricate it from years of unconventional monetary policy.
Most recently, Guggenheim’s Scott Minerd doubled down on his claim that the markets look like a Ponzi scheme amid the Fed’s stealth QE.
Dow Stocks: Boeing Struggles Again, IBM Soars Post Earnings
It was a generally solid day in the Dow 30, as the index was able to establish itself in the green.
With Boeing stock (NYSE: BA) in free-fall after a downgrade and another 737 MAX delay, new CEO David Calhoun reassured investors that the U.S. aerospace giant would continue to pay its dividend. BA shares still fell 1.5% on the day.
Apple (NASDAQ: AAPL) managed to get back on track, with 0.7% move to the upside, while IBM led the index with a 3% rally after its earnings release. Intel rose another 2.9% ahead of Thursday’s quarterly report.
Dow Inc. was a miserable performer, dipping 2.9% to drop its year-to-date return to roughly -7%.
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