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Dow Jones Surges as Wall Street Laughs Off Dire Economic Fundamentals

Last Updated September 23, 2020 12:55 PM
Francois Aure
Last Updated September 23, 2020 12:55 PM

The Dow Jones soared toward a major resistance level on Thursday, even after weak pending home sales data threatened to dent the buoyant mood.

While investors cheered China’s measured rhetoric on the trade war, US economic fundamentals continue to suffer from uncertainty, keeping the Dow locked in a stifling long-term sideways range.

Dow Jones Rises, But Fails to Break Out of Sideways Range

As of 12:18 pm ET, the Dow Jones Industrial Average had surged by 337.5 points or 1.30%. The DJIA last traded at 26,373.6.

dow jones industrial average
The Dow Jones rallied on Thursday but remains stuck in a choppy sideways range. | Source: Yahoo Finance

The 2.5% reduction in pending home sales  seemed to stop the Dow Jones in its tracks, but it’s the subtext of this reading that should weigh on investors.

Sentiment indicators like home sales could be more meaningful than optimistic tweets or press releases over the long term as traders try and gauge recession risks.

Ultra-Low Rates Do Little to Restore Confidence

In a note released to CNBC , Lawrence Yun, NAR’s chief economist, made the following comments on the state of the US housing market, as low rates are not doing their job.

“Super-low mortgage rates have not yet consistently pulled buyers back into the market. Economic uncertainty is no doubt holding back some potential demand, but what is desperately needed is more supply of moderately priced homes.”

Market Ignores Trump’s Fed-Bashing

Trump chose this morning to attack the Federal Reserve, but – as is becoming the norm – market reaction was negligible. This is yet another indicator of investor disinterest in these assaults on Jerome Powell and highlights the shift to fundamental macro releases in line with the Fed’s data-dependent outlook  on rates.

A further reason for bulls to disregard Trump’s Twitter tirades came from a survey on US companies, as 80% of CEOs  are now seeing a negative hit from the trade war. This figure contrasts with the positive spin that the administration has sought to put on tariffs.

Dow Stocks: Caterpillar and Nike Bask in Brighter Risk Sentiment

There was plenty to be excited about for investors in the Dow 30 , as Caterpillar impressed with a solid 2% bounce. The machinery producer has substantial exposure to China and is often seen as a bellwether for global risk. Hence, China’s conciliatory comments were good news for CAT.

Nike, another stock with plenty of China investment, was also performing well – up over 2.2%.

Johnson and Johnson was the Dow’s laggard, down more than 0.15% as it appears the worst is far from over  for the company after their alleged involvement in the opioid crisis.

Click here for a real-time Dow Jones Industrial Average chart.