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Dow Snaps Out of Slump After Federal Reserve Placates Wall Street

Last Updated September 23, 2020 2:09 PM
Francois Aure
Last Updated September 23, 2020 2:09 PM
  • The Dow Jones survived another Federal Reserve policy meeting.
  • A dovish Fed proved no worry as the U.S. stock market rose during Jerome Powell’s press conference.
  • Nordea Asset Management believes the U.S. economy will continue to suffer from Trump’s response to the pandemic.

The Dow Jones rallied toward session highs on Wednesday afternoon after the Federal Reserve did its best to avoid rocking Wall Street’s boat.

Encouraging data from the housing market and energy sector suggest the economy is continuing to recover.

Unfortunately, Nordea Asset Management warns the pandemic will keep the “U-shaped” recovery from sharpening into a “V.”

Dow Climbs Despite Fed Warnings on Economy

The main event for the stock market today was the Federal Reserve’s FOMC meeting. It brought few surprises. Interest rates held steady, and there was minimal change in the accompanying policy statement. 

Stocks shot higher after Fed Chair Jerome Powell took the podium this afternoon. As of 3:16 pm ET, the Dow traded at 26,525.75 for a gain of 146.49 points or 0.56%.

Dow Jones, Federal Reserve
The Dow Jones rallied as a dovish Federal Reserve kept Wall Street happy. | Source: Yahoo Finance 

The S&P 500 jumped 1.18% to 3,256.51.

The Nasdaq led the way with a 1.2% surge to 10,526.51.

Powell’s press conference was as dovish as expected. He reaffirmed the bank’s commitment to keeping its emergency policies in place for as long as it takes.

On the economic data front, there were two strong readings: Pending home sales and crude oil inventories both beat expectations .

This suggests the housing market continues to recover and that oil consumption has been more robust than anticipated.

Nordea Fears Trump’s Virus Response Will Weigh on U.S. Economy

The Federal Reserve has made an effort to link its economic forecasts with the outcome of the pandemic.

The bank’s dovish tone suggests that FOMC voters – like most Americans  – don’t believe the Trump administration is doing a great job of handling the outbreak.

Sebastian Galy, senior economist at Nordea Asset Management, said in a note shared with CCN.com that the White House’s “poor… management” could trap the U.S. economy in a U-shaped recovery.

Galy wrote:

Poor global Health management by the White House means that pockets will continue to erupt from places without much or ineffective health enforcement. That overall suggests that we are broadly in a U shaped recovery. It will be weaker than in Europe, because those badly affected are not helped very much.

The data appears to back up Galy’s argument that Europe is emerging for the pandemic more effectively than the United States.

While most of Europe has a flat coronavirus curve, several U.S. states (especially South Carolina, Florida, Arizona, and Texas) are struggling to deal with bad outbreaks .

Dow 30: Big Tech Brushes Off Hearings

The Dow 30  was relatively calm on Wednesday.

The index’s heaviest stock, Apple, rallied 1.6% despite CEO Tim Cook’s grilling in front of a congressional subcommittee. Regulatory fears will always be a lurking tail risk for AAPL, but shareholders looked anything but concerned today.

Healthcare giant UnitedHealth Group was the strongest stock in the index, posting an impressive 2.9% gain.

Another prominent Dow 30 member, Boeing, fell 2.8%. The aerospace giant reported worse-than-expected second-quarter earnings, losing $4.79 per share. It didn’t help that JetBlue’s CEO warned a “day of reckoning”  is coming for airlines.

Boeing was the worst performer in the index, but it was followed closely by Raytheon (-2.5%) and Intel (-2.3%).