Disney beat earnings expectations, the dollar weakened, and Congress moved closer to a relief package: the perfect storm to push stocks higher.
The U.S. stock market is poised for fireworks today. The Dow Jones Industrial Average (DJIA) surged nearly 250 points to shoot past the 27,000 level.
There are three simple reasons for optimism on Wall Street today:
Altogether, these factors are driving investors back into risk-on mode.
Video: Disney crushed profit expectations last night
Global stock markets jumped overnight, and the Dow Jones Industrial Average (DJIA) joined the party on Wednesday morning.
By 10:05 am ET, the Dow had rallied 246.27 points or 0.92% to 27,074.74.
The S&P 500 rallied 0.59% to 3,326.16, while the Nasdaq edged 0.38% higher to 10,983.27. U.S. stocks are on track for their fourth-straight day of gains.
In the same breath, gold surpassed the $2,000 mark for the first time ever.
Analysts were expecting a painful loss for Disney going into last night earnings call. Instead, the company delivered an adjusted profit of 8 cents per share. Disney stock climbed 9% this morning, boosting the entire Dow Jones index.
Despite a brutal $3.5 billion hit to its Parks revenue this quarter, investors think the worst is now over for Disney. Bloomberg’s Paul Sweeney explains:
This will probably be the trough quarter for Disney here as the global economies begin to slowly re-open.
Across the board, earnings have been nowhere near as disastrous as many feared. Apple, Alphabet, Facebook, and Amazon all beat expectations last week, which goes some way to justifying the impressive bounce in the stock market.
Those same companies will also benefit from a weaker dollar. The dollar index has slumped to a two-year low as U.S. real rates decline. Goldman Sachs predicts a 5% weaker dollar in trade-weighted terms through the next 12 months.
Video: Why is the dollar declining?
Why does this matter? As Barron’s put it:
A weaker dollar has typically been positive for earnings.
The weak dollar is a positive for giant corporations who make their money in foreign markets. When they repatriate their earnings from Europe or Asia, they get a better exchange rate.
This isn’t likely to end any time soon, either. Ira Epstein at Division of Linn & Associates explains why this is happening:
Our Fed is committed to low interest rates. They’re not even thinking of when to raise interest rates. What do you think that does for the dollar? I think that weakens it.
Lastly, Congress and the White House are closing in on an agreement for the next relief package. Speaking last night, Treasury Secretary Steven Mnuchin said he’s hoping for an agreement by the end of the week.
If we can get one, by the end of this week… legislation could then pass next week.
On the other side of the aisle, Speaker of the United States House of Representatives Nancy Pelosi also expressed hope for an agreement this week.
We have to have an agreement and we will have an agreement.
The deal is likely to include a moratorium on evictions through the end of the year. Democrats and Republicans remain split, however, on the issue of unemployment benefits.
Last modified: September 23, 2020 2:10 PM