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Dow Snaps Out of Rut as Economy Survives Another Crucial Test

Last Updated September 23, 2020 1:14 PM
Josiah Wilmoth
Last Updated September 23, 2020 1:14 PM
  • The Dow, S&P 500, and Nasdaq resisted the temptation to extend their slump on Thursday.
  • All three stock indices secured substantial gains as trade war developments trended in a positive direction.
  • Meanwhile, the US economy continues to defy recession warnings.

The Dow snapped out of its single-day slump on Thursday, racing toward a triple-digit rally as the stock market basked in brighter trade war sentiment.

Adding to the bullish mood, an important data release came in stronger than expected, demonstrating that the US economy continues to hum along toward steady growth.

Dow, S&P 500, and Nasdaq Spike Toward Loftier Heights

Wall Street’s three most closely watched indices rose in unison on Thursday.

The Dow Jones Industrial Average surged 163.08 points or 0.59%, lifting the index to 27,655.64.

dow jones industrial average chart
The Dow jumped more than 100 points on Thursday morning. | Source: Yahoo Finance

The Nasdaq followed closely behind, advancing 44.52 points or 0.53% to 8,455.14.

The S&P 500 lagged its peers, rising 13.55 points or 0.44% to 3,090.33.

The risk-on mood triggered a spike in bond yields, which rise as bond prices decline. The yield on the 10-year US Treasury note jumped to 1.89%, its highest point since mid-September . The 30-year Treasury bond ranged as high as 2.38%.

Gold, which tends to bounce on trade war volatility, declined nearly 0.5% to $1,485.

US Economy Hums Along as Trade War Outlook Brightens

The primary catalyst for Thursday’s rally was the stunning news that the US and China have agreed in principle to roll back tariffs as part of the long-awaited “phase one” trade agreement.

Risks remain, including the likelihood of delays. Nevertheless, Wall Street was pleased to receive confirmation that the deal, whenever it arrives, should begin unwinding at least some of the tariffs that have damaged both the US and Chinese economies.

That wasn’t the only good news the US economy received today. Weekly jobless claims also fell more than expected, the latest evidence that growth – while slowing – isn’t on the brink of sliding into reverse.

According to the Labor Department, weekly jobless claims declined to 211,000  for the week ended Nov. 2, notching a one-month low and beating economist estimates of 215,000.

weekly jobless claims, us economy, impact on dow and stock market
Weekly jobless claims had been in a steady decline since the financial crisis, but they have flatlined since 2018. | Source: Trading Economics 

Some Wall Street analysts had begun to fear that shrinking demand for labor would lead to a rise in jobless claims . That would present a severe threat to the economy because strong consumer spending has helped buttress the expansion – and offset the manufacturing recession.

Job creation has slowed, but that data point hasn’t dovetailed with an increase in firings. At least not yet.

If that begins to change, cracks could begin to form in consumer data, and the canary in the coal mine will be an uptick in unemployment claims.

“The question is when things for the consumer begin to change, when that leads to a pick up in firings, jobless claims will be the high frequency number that captures that on a weekly basis,” Peter Boockvar, chief investment officer at Bleakley Advisory Group, told CNBC.

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