The Dow Jones opened sharply lower on Monday, but dip-buyers rapidly came in to push the index 1,000 points off its lows.
As the Federal Reserve pumped equity markets the promise to buy individual corporate debt, Dow bulls find themselves at a significant inflection point.
All three of the major U.S. stock market indices rose on Monday. The Nasdaq led the way with a 1.7% rally, while the Dow Jones and S&P 500 posted more moderate gains of around 1%.
The Federal Reserve is juicing markets with a historic amount of liquidity. Many investors believe that “QE infinite” is the leading fundamental driving stocks.
On Monday, markets rebounded amid news that the Fed will purchase individual corporate debt.
There is compelling evidence that the central bank will begin pursuing such unconventional tactics. Last week’s correction coincided with an apparent reduction in the scope of the Fed’s asset purchases.
Of course, it is not just the FOMC that is moving the market, as a wave of retail speculation is also present in the Dow.
Led by cult figures like Barstool President Dave Portnoy, small traders on platforms like Robinhood are gambling on speculative stocks. Several of these companies have the weakest balance sheets on Wall Street.
The prevailing view in the billionaire circle is that this cannot possibly end well.
In combination with these concerns, the problem that caused the Dow Jones to crash in March is still not resolved. Fears of a second wave of the pandemic are growing. Texas and Florida are among several U.S. states reporting a daily record of positive cases.
Of course, many in the medical community believe that most areas are still dealing with the primary wave.
A fresh breakout in China further added to market concerns.
On a more positive note, there are still bullish analysts out there. Sebastian Galy at Nordea Asset Management told CCN.com about an optimistic dynamic in equity prices that he sees unfolding:
We remain constructive on our equity outlook though it might take a week for markets to calm down. The third wave of this Covid-19 rally should eventually materialize before we enter a far more complex environment where flexible solutions with their automated logic are better able to navigate.
For now, the bulls are making a tremendous technical case for another leg higher, as investors plow into the dip to start the week. More than 700 points of losses vanished as break-neck volatility continues on Wall Street.
On a mixed day for the Dow 30, major stocks Apple (NASDAQ:APPL) and Boeing (NYSE:BA) rose, helping to support the index. Boeing got off to a rough start before it was carried higher with a rally in domestic airlines.
Despite some optimism around a potential vaccine in the pandemic fight, Pfizer stock fell 1.5% as investors don’t seem to be buying the big talk coming out of the company’s PR department.
The top-performing stock in the Dow Jones was Raytheon Technologies (NYSE:RTX), up 3%, while the weakest was Merck & Co (NYSE:MRK) down around 2.5%.