The Dow Jones ripped 700 points higher overnight as investors finally saw the beginning of the end to the coronavirus crisis. New York Governor Andrew Cuomo announced the peak of the outbreak in the region might be within seven days, and stock market investors can now start pricing for lock-downs to be eased eventually.
The outlook for consumer demand is still a significant headwind longer term for the Dow.
All three of the major U.S. stock market futures indices rallied overnight, carrying the Dow Jones, S&P 500 and Nasdaq more than 3% higher.
In the commodity sector, the price of oil bounced off its lows as stocks gained, as crude ate into its losses after a big $2 gap down to $26.30 at the start of the session. Risk-on conditions were not good news for the price of gold, which dipped slightly at the open of trade.
The coronavirus now has more than 1.2 million confirmed cases around the world. Three hundred forty thousand of these are in the United States, while Europe has three nations (Germany, Spain and Italy) which have more than 100,00 cases combined.
Despite these worrying statistics, there are signs in both the U.S. and Eurozone that the tide may be turning. Italy, which has been the epicenter of the crisis in the region, has hopefully seen its deaths peak, while Spain is also seeing a deceleration.
It was the home of Wall Street, N.Y.C. where the most positive development for the stock market was seen.
For the first time, Governor Andrew Cuomo of New York sounded cautiously optimistic that the end is in sight.
Dow futures jumped at the open of trade, fueled in part by the following from Cuomo, as he stated:
Our reading of the projections is: We are somewhere in the seven-day range…Four, five, six, seven, eight-day range.
There is actual substance behind these comments, as the data does show that the coronavirus storm is breaking in N.Y.
As Dow futures point to an impressive open for the Dow Jones, there is still a huge issue for the stock market that will have to be addressed sooner rather than later.
While Congress and the Federal Reserve have succeeded in providing some shock and awe packages for a stricken U.S. economy, these measures are essentially a bridge loan to lessen the explosive damage from the shut-down.
Unfortunately, there is no guarantee that if Trump sounds the all-clear in May that consumer demand rebounds as quickly as it stopped. The President is also under no illusions, about what the coming week will likely bring in the way of deaths.
In a report from Nordea, economists are wary that all these efforts will be in vain, and even raise the specter of government overreach continuing into the private sector,
Whether the public sector succeeds in bailing out everything is another matter. Without any demand, it will prove to be a costly operation. We continue to think that it makes sense to bailout as much as possible given that this is a politically decided recession / close-down. The long-term effects of very broad bailouts though need to be considered as it could become politically tempting to interfere in right about everything in private business.
Stock markets typically dislike additional regulation, but it is the issue of demand that will keep even the most optimistic Dow bulls up at night.
The Dow has been supported by resilient performances from it’s two $trillion tech giants, Microsoft (NASDAQ: MSFT) and Apple (NASDAQ: AAPL).
Despite the major sell-off, Microsoft is down just 2.5% for the year, although it is still well off its peak.
While Apple is not set to open its stores for at least another month, the company is doing its best to help in the fight against COVID-19. Tim Cook announced a substantial effort to produce 1 million face masks for medical workers on the front-line, a robust political move that will help keep it in the White House’s good books.
A significant worry for the Dow Jones’ most heavily weighted stock is a concerning outlook not just for the American consumer but also the Chinese, as China is a crucial market for AAPL and is showing clear signs of weakness.
Last modified: June 24, 2020 1:03 AM UTC