The Dow Jones could extend its surge into next week thanks to the Fed's aggressive push and progress with coronavirus drug development.
The Dow Jones Industrial Average (DJIA) closed the week on a tear, and the stock market rally may be primed to continue when trading resumes on Monday.
Despite surging jobless claims and gloomy expectations of Q2 earnings guidance, the Federal Reserve’s consistent aggression in easing fiscal policy and progress with coronavirus is keeping the market afloat.
The index secured a decent 1.22% gain on Thursday after the Fed said it would inject $2.3 trillion into the U.S. economy to provide “relief and stability.”
Companies across all industries, from pharma giants to cigarette manufacturers, are focusing on creating coronavirus vaccines and drugs that can be used in the near-term.
Vaccines require many months of clinical testing before they can be distributed commercially, which led scientists to estimate 12 to 18 months for a vaccine to be manufactured.
But, on April 9, $196 billion pharma corporation Pfizer said that it predicts a coronavirus drug to be made in the next 9 months, leading the Dow Jones to react positively to it.
The company said that it intends to enter clinical testing by the third quarter of 2020, which would cut the estimate of the coronavirus drug production timeline by half.
Dr. Mikael Dolsten, chief scientific officer at Pfizer, told CNBC:
This is much faster than the original prediction of 18 months. It’s almost half the time.
If the clinical testing goes according to plan, with the approval from the authorities, Pfizer said that it may be able to produce and supply millions of vaccine doses by the year’s end.
The creation of the first coronavirus vaccine is expected to lead to a massive reaction from global markets, which would trigger an intense Dow Jones recovery.
When the vaccine comes from an American company listed in the U.S. stock market, the Dow Jones is likely to respond more fiercely than anticipated.
Fractals from 2008 and the Great Depression suggest that the rebound of the Dow Jones in the last two weeks show alarming signs of a fake out rally.
The trend of the stock market closely resembles the 2008 crash, with every minor recovery and major pullback matching with this year’s Dow Jones correction.
The Fed is taking a significantly more aggressive approach than it did in 2008 to prevent the market from spiraling down with no safety nets.
While key stocks in the likes of Boeing have surged by nearly two-fold within a one-month span, the Dow Jones has typically seen several extended dead cat bounces before another leg down.
In the short-term, as high-profile strategists have emphasized since mid-March, the key to a stable Dow Jones recovery is actual progress in containing the coronavirus outbreak, at least in the U.S.
So far, the U.S. has vamped up its coronavirus testing capacity, but scientists remain skeptical towards predicting a normalization of society and economic activities in the next month or two.
Last modified: September 23, 2020 1:48 PM