The Dow Jones exploded higher today, thanks to Trump's unilateral stimulus and improving Chinese economic data.
The Dow Jones Industrial Average (DJIA) exploded higher to start the week, even as the broader stock market struggled for momentum.
Chinese data showed reflation is underway in the world’s second-largest economy, labor market statistics beat forecasts, and investors cheered Trump’s fiscal intervention over the weekend.
The Dow Jones was comfortably the strongest of the major U.S. stock market indices on late Monday afternoon.
As of 3:27 pm ET, the Dow had surged 360.69 points or 1.31% to 27,794.17.
That far outpaced the S&P 500, which rose 0.2% to 3,358.09. Despite the broad market gains, the tech-heavy Nasdaq slid 0.52% to 10,953.58.
While it was a relatively quiet Monday on the U.S. economic data front, JOLTS job openings came in at 5.9 million, an increase from the previous month. Hires slid to 6.7 million in June after a strong rebound in May.
Chinese data appeared more pertinent for investors today. Statistics released on Sunday showed that deflation is receding; its most recent CPI reading came in over forecasts at 0.6%.
While U.S. analysts will always take statistics out of Beijing with a pinch of salt, it appears China is doing the heavy lifting in the global economic rebound – much as it did after the financial crisis.
Many Dow Jones components have a considerable Chinese presence, which explains why the index outperformed the S&P 500 and Nasdaq today.
Faced with the deadlock in Congress, Donald Trump was forced to step in to reassure a nervy stock market over the weekend.
While Trump’s $400 weekly unemployment benefit will not match the $600 Congress allocated via the CARES Act, it’s better than nothing for jobless workers. His introduction of additional stimulus appeared to have a positive impact on the stock market.
Video: Is Trump’s Executive Order Strategy “Unworkable?”
Other measures Trump addressed through executive orders included a payroll tax deferral for earners under $100,000 and extended student loan interest forgiveness.
While litigation over the legality of Trump’s orders remains likely, Dow bulls don’t seem fazed. That could change over the long-term, though.
The president’s use of FEMA funds to pay for unemployment benefits could be a worry down the line given an extremely active hurricane season is anticipated in the United States.
Watch: Cramer Still Believes There Is More Stimulus on the Way
Although Trump’s actions are controversial, investors don’t believe it’s the final stimulus coming from the federal government.
If anything, the executive orders appear designed to pressure congressional Democrats into cutting a deal with the White House.
Economist Sebastian Galy at Nordea Asset Management argues the stock market “relief rally” is nearing its final stage: “hope and make-believe.”
Even so, he says equity prices could continue heading higher through October as economic data improves.
He explained in a comment shared with CCN.com:
We continue to be in the latter stage of what was once a relief rally, moving from short-term realism to hope and make-believe. This can last into September/October fed by improving data as the summer ebbs, as time does its healing and the US President’s new executive measure have an impact.
Galy remains particularly wary of growth stocks, which have driven the market’s gains since the recovery began in March. He cautions investors to avoid stretching already-extended valuations further.
Video: Soaring Tech Valuations Have Some Analysts Worried
Monday was fantastic for the Dow 30, as positive risk sentiment helped pump the majority of the index.
The additional stimulus improved the outlook for consumer spending, a move confirmed by American Express’ 2.4% jump.
China’s recovery was good news for Apple bulls, given the company’s sizeable presence on the mainland. AAPL shares rose 1.6%.
Most of the other big winners in the index have China exposure too:
Microsoft stock was the weakest link in the Dow Jones, suffering a 2.2% pullback. The only other DJIA component with a noteworthy loss was Disney, whose shares fell 0.8%.
Last modified: September 23, 2020 2:19 PM