The Dow Jones is at a record high, but is China's decision to pump fresh stimulus into its economy hinting at a prolonged trade war?
A burst of enthusiasm helped carry the Dow Jones sharply higher on Thursday, as the first full trading day of 2020 started the year off with a bang.
With steep moves in some of the Dow’s largest stocks like Apple (NASDAQ: AAPL) and Boeing (NYSE: BA), the rally benefited from additional stimulus from the Chinese central bank.
All three of the major US stock market indices traded sharply higher ahead of the closing bell.
The Dow Jones Industrial Average surged 231.27 points or 0.81% to 28,769.71, splitting the difference between the Nasdaq (+1.01%) and the S&P 500 (+0.53%).
A bright start for European markets helped catalyze this move, as German stocks rallied more than 1% after a strong performance overnight in Asia.
Despite a surging US dollar and a sky-high stock market, the price of gold pressed higher with a 0.3% rally. Crude oil eased lower (-0.25%), failing to capitalize on the euphoria in equities. At the same time, bitcoin breached the $7,000 level after a 3.6% drop today.
With the Dow Jones trading at a record high once again, Wall Street is enjoying the absence of trade war-related drama. As the January 15th trade deal signing ceremony draws closer, traders will inevitably start looking ahead to whether there is another, more considerable agreement coming.
In a report on the outlook for 2020, Kathy Lien at BK Asset Management notes that a decent portion of market confidence comes from the knowledge that President Trump will be terrified of sparking a stock market crash.
In early January, we expect the Phase 1 trade deal to be signed, but the broader trade war may last past 2020. The key question is whether it will worsen or stabilize ahead of the November election…
One of President Trump’s greatest “accomplishments” is the record highs in US stocks and he knows that his reelection bid will be killed by a crash in equities. So instead, he may offer China a second olive branch that would be applauded by the markets.
Whether or not Trump can independently influence the direction of the Dow, we have seen equities readily endure the previous set of tariffs. The reduced probability of escalation is likely restoring investor confidence rather than the prospect of a game-changing agreement between Xi and Trump.
In fact, some analysts are speculating that China’s recent decision to increase stimulus in its economy is a clear sign that the phase two deal is unlikely to happen.
A buoyant Dow 30 began 2020 with something that was so often missing in 2019: a 1.9% rally in its most heavily weighted stock, Boeing (NYSE: BA).
This move comes despite reports that the largest US aerospace manufacturer lost its crown as the largest planemaker in the world to Airbus. While these two companies have often jostled for the top spot, Dow bulls are desperate to see the 737 MAX saga concluded this year to ensure the index fulfills the lost potential of an otherwise stellar 2019.
A rally in tech stocks was led by Apple (NASDAQ: AAPL), which gained over 1.85%. With plenty of upbeat forecasts for the 5G iPhone and the success of its wireless headphones, AAPL is poised to benefit from any further improvement in US-China relations. The only caveat is that following an 80% rally last year, it’s unclear how much juice there is left to squeeze.
Last modified: March 4, 2021 2:40 PM