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