Dow Rallies as Investors Ignore CBO’s $1 Trillion Debt Bombshell

The Dow Jones rallied on Wednesday thanks to a strong US consumer, but a $1 trillion debt bombshell from the CBO lurked in the background. | Source: REUTERS / Brendan McDermid

By The Dow Jones bounced over 1% on Wednesday, and not even an epic Trump rant was enough to spoil the stock market’s party.

Wall Street enjoyed stellar retail figures from Target and Lowe’s, alongside robust new home sales data and demand for crude oil.

Dark clouds returned, however, as the CBO (Congressional Budget Office) dropped a $1 trillion bombshell about US debt.

Strong Consumer Bails Out Dow Jones After Trump Attacks Fed

The Dow Jones Industrial Average began the afternoon session on firm footing, having gained as much as 300 points earlier in the day. The DJIA last traded at 26,246.44 for a gain of 284 points or 1.09%.

The Dow surged as much as 300 points on Wednesday. | Source: Yahoo Finance

Donald Trump and the Federal Reserve take up so much media oxygen in the stock market that it’s often easy to ignore far purer fundamentals.

Just this morning, the president unleashed a savage attack on the Fed ahead of the FOMC minutes release this afternoon.

However, fundamentals always win out, and today there is no doubt that the Dow is enjoying plenty of support from excellent retail sales data.

The spike in new home sales is another sign of healthy underlying economic activity, suggesting that lower interest rates may be doing their job.

A final sign of consumer strength came as EIA crude oil inventories fell more than expected.

US Debt Bombshell: CBO Says Deficit Will Hit $1 Trillion in 2020

The non-partisan CBO now expects the US deficit to top $1 trillion in 2020. | Source: Congressional Budget Office

Far more concerning for the Dow Jones was the publication of a non-partisan CBO report stating that the federal budget deficit will overshoot $1 trillion much earlier than anticipated.

That’s a clear blow to the Trump administration’s “pay for itself” tax cut last year.

From the report:

“In CBO’s projections, the federal budget deficit is $960 billion in 2019 and averages $1.2 trillion between 2020 and 2029. Over the coming decade, deficits (after adjustments to exclude the effects of shifts in the timing of certain payments) fluctuate between 4.4 percent and 4.8 percent of gross domestic product (GDP), well above the average over the past 50 years. CBO’s estimate of the deficit for 2019 is now $63 billion more—and its projection of the cumulative deficit over the 2020–2029 period, $809 billion more—than it was in May 2019.”

Dow Stocks: Boeing Surges on 737 Hiring, Apple Launches Credit Card

The major Dow Jones stocks were led into the green by Boeing’s 2.75% surge. The largest US aerospace company indicated it was prepared to hire hundreds of temporary workers to relaunch the infamous 737 Max earlier than planned.

Apple enjoyed a 1.3% bounce, as investors eye its new credit card offering with plenty of hype surrounding the Goldman Sachs backed product.

While not in the red, Disney was a noticeable laggard, barely higher as fallout from the Sony-Spiderman controversy sparked talk of boycotts and spread ill-will among superhero movie junkies.

Last modified: September 30, 2020 3:20 PM

Francois Aure: Financial speculator & author living in the hills in Los Angeles. J.D. but very much not a lawyer. Favorite trading books are anything written by Jack Schwager. | Follow Me On Twitter | Email Me