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Dow Sputters as Devastating Data Crushes Economic Optimism

Last Updated September 23, 2020 1:56 PM
Francois Aure
Last Updated September 23, 2020 1:56 PM
  • The Dow lurched sideways to close another volatile trading session.
  • U.S. economic data continues to underwhelm, and retail sales missed expectations by a wide margin.
  • Donald Trump is getting aggressive with China, and CNBC’s Jim Cramer thinks this is bad news for the stock market.

An impressive oil price rally helped support the Dow Jones on Friday. But the bounce wasn’t sufficient to help the stock market completely shake off some brutal economic data that has hopes for a rapid recovery fading fast.

Dow Whipsaws After Retail Data Spooks Bulls

All three of the major stock market indices  swung wildly to close the week, bouncing between gains and losses throughout the session.

  • The Dow slid 55.35 points or 0.23% to 23,569.99.
  • The S&P 500 dipped 0.14% to 2,848.88.
  • The Nasdaq edged 0.31% higher to 8,971.31.
Dow Jones, stock market, coronavirus, Retail Sales
The Dow Jones was all over the place on Friday. Dire retail sales data is finally dragging on Wall Street bulls. | Source: Yahoo Finance 

Crude oil’s 7.3% jump helped support risk assets by giving investors one less thing to worry about. As WTI futures approach the $30 handle, the mood is improving – even if the U.S. rig count continues to collapse.

Adding to oil’s tentatively bullish outlook, China is showing more signs of economic activity. This was evidenced by better-than-expected industrial production data that was released overnight.

Joshua Mahony, senior market analyst at IG, warned that investors should take these statistics with a pinch of salt.

Mahony said in a comment shared with CCN.com:

One area of optimism came from the Chinese industrial production figure, which rose back into positive territory to signal a potential pick-up in business activity.

However, with global demand on the wane, there will continue to be questions over Chinese growth as a result of the worldwide lockdown.

Then there’s the renewed threat of the U.S.-China trade war, which is keeping the Dow on edge.

But there’s a sense Trump may be forced to back down from his harsh rhetoric, considering how fragile the stock market rally appears.

Even noted China hawk Jim Cramer is hesitant to watch the White House reignite a pitched fight with Beijing.

Cramer has a point.

Consumer sentiment and retail sales data released Friday exposed the stunning weakness in the U.S. economy . It’s the product of households tightening their belts during the global lockdowns in the fight against COVID-19.

Retail sales were particularly bleak, and the 16.4% contraction was significantly worse than what forecasters expected.

Dow Jones, stock market, retail sales
Retail sales plunged by their worst mark on record in April. | Source: Think ING 

Economist James Knightley at ING believes that while the bottom may be in for consumer activity, there is almost no evidence to suggest that it will recover anytime soon.

Knightley cites the glacial pace of recovery after the Great Recession as a dangerous warning sign for bulls:

Remember that the Global Financial Crisis saw output fall 4% peak to trough, and it took 14 quarters for that output to be recovered. We see little reason for the lost output in the current crisis to be recovered much quicker than that.

Dow 30 Stocks: A Mixed Bag

The Dow 30  lacked obvious momentum on Friday, but the index was hampered by a rare day of weakness for mighty Apple stock, which limped 1% lower.

Another heavily weighted Dow Jones member, UnitedHealth Group, was a bright spot with a 1.3% gain.

After a spectacular rally on Thursday, JPMorgan Chase gave some points back, recording a 2.5% loss.

Major oil companies Chevron and Exxon Mobil both incurred minor pullbacks, as the huge rally in the price of crude failed to provide much support to the supermajors.