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Strong Dow Recovery Shouldn’t Surprise with Robust U.S. Economy

Last Updated September 23, 2020 12:39 PM
Joseph Young
Last Updated September 23, 2020 12:39 PM

From April 11 to 12, within a two-day span, the Dow Jones experienced a recovery from 26,062 points to 26,412 points, by 1.34 percent.

The dow jones has recovered relatively well since April (source: Yahoo Finance)

Throughout early April, the Dow Jones had struggled to show momentum above the mid-25,000-point level, possibly due to the lack of clear stimuli for short-term growth and the uncertainty surrounding the trade talks between the U.S. and China.

As said  by Thomas Lee, head of research at Fundstrat Global Advisors, the U.S. economy may be in better shape than most investors expect, considering that JPMorgan, the largest bank in the U.S., recorded a profit in the first quarter of 2019.

The U.S. Economy is Fine, Is a Bright Future Ahead For the Dow?

According to the WSJ, JPMorgan executives cited strong lending, a solid economy, growing confidence of business clients, and healthy credit card spending as the driver of an optimistic quarter for banks.

On a conference call, JPMorgan Chief Financial Officer Marianne Lake said, “those underlying drivers continue to chug along nicely.”

Fort Pitt Capital Group institutional development director Carter Henderson emphasized that the performance of the first quarter of 2019 beat the expectations of the banks.

“It was a better-than-expected quarter for the banks, which was encouraging to see. But I think that’s as good as it’s going to get for these big banks this year because in the first quarter they were still getting that tailwind from the last Fed hike in December,” Henderson noted.

The increase in lending and overall consumer confidence in the U.S. most likely stems from the lack of appetite of the Federal Reserve to raise the benchmark interest rate until the year’s end.

With John Williams, the president of Federal Reserve Bank of New York, reaffirming that the current policy of the Fed is well positioned and several other Federal Reserve officials vowing to observe the economy before considering any changes, the demand for loans is expected to remain strong.

Stating that the U.S. economy is in a good place, Williams said :

Monetary policy is really well positioned right now in terms of the short-term interest rate. We are in a good place, the economy is in a good place and with the balance-sheet normalization coming to an end not that far off in the future, I think that means the position of monetary policy is good.  don’t have any worries on financial stability right now and worries about inflation pressures getting red hot, so we do have this space to be both patient about our policy stance and…to adjust it if needed.

The Fed’s patient approach towards the adjustment of the benchmark interest rate has improved the general sentiment and confidence around the U.S. economy in recent weeks.

Is a New Stimulus Still Needed to Push the U.S. Equities Market?

The S&P 500, the Dow Jones, and the rest of the U.S. equities market have demonstrated strength since early April but strategists believe that a stimulus is needed to push the market further from its current position.

Some suspect that the stimulus could be more progress in the U.S.-China trade deal, which is highly likely given that the two sides have cleared significant hurdles such as enforcement.

On Wednesday, Treasury Secretary Steven Mnuchin said that the U.S. and China have “pretty much agreed on an enforcement mechanism.”

“We’ve agreed that both sides will establish enforcement offices that will deal with the ongoing matters. This is something both sides are taking very seriously,” secretary Mnuchin added .