Appetite for stocks continues to look firm, as bulls enjoyed an oil price boom and chose to ignore another inversion in the US yield curve.
Dow Jones Recovers from Early Plunge
As of 12:00 pm ET, the Dow Jones Industrial Average had gained 188 points or 0.73%. The DJIA now trades at 25,966, despite dropping around 100 points earlier in the session.
Donald Trump has been relatively quiet about the trade war over the last few days, and investors appear to be taking the opportunity to take on some risk.
The constant to-and-froing in the bond market is only clouding the outlook at this time, as the yield curve has frequently inverted only to establish itself in a positive direction again.
The Dow did take a slight tumble after Trump attacked the intelligence of the Federal Reserve, perhaps a comeback to many in the market suggesting he does not have the mental capacity to be president.
Prajakta Bhide, a market strategist at MRB Partners, believes recessionary fears may be overblown regarding the yield curve, as she was quoted by CNBC saying:
“The yield curve’s inversion this year is a symptom of external growth stress and powerful distortions in global bond yields and does not reflect restrictive Fed policy. Thus, it does not warrant a bearish economic interpretation… the odds of a recession in the next 12 months are no higher than 20%.”
Oil Prices Boom After Massive Inventory Drop
A huge 10 million barrel draw in EIA oil Inventories helped send energy prices soaring as Brent crude futures shot more than 2% higher on the day.
Given oil’s impact on inflation, rising prices are likely to make the Federal Reserve’s job even more difficult.
With so much easing priced into equity markets and the CPI already significantly elevated (relative to recent norms), inflation looks to be a most significant tail risk to the US stock market.
Dow Stocks: United Healthcare Soars on 2020 Polling
It was another mixed bag for the major Dow Jones stocks on Wednesday.
United Healthcare bolstered the DJIA’s recovery, up over 2% as Democratic primary polling indicates that the more moderate Joe Biden still leads comfortably over progressive firebrands Bernie Sanders and Elizabeth Warren.
Given the bounce in the oil price, it was unsurprising to see Chevron and Exxon Mobil rallying around 1%.
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