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Here’s Why the Dow Didn’t Crash Despite This Grisly COVID-19 Milestone

Last Updated September 23, 2020 1:55 PM
Francois Aure
Last Updated September 23, 2020 1:55 PM
  • The Dow Jones flatlined during a relatively uneventful start to the week.
  • Hopes of a V-shaped recovery continue to support the U.S. stock market, even as global coronavirus cases top 4 million.
  • Negative interest rates have become a realistic possibility in the United States, and one Harvard economist even thinks they are a great idea.

The Dow Jones flatlined on Monday as resurgent hopes of a V-shaped economic recovery helped the U.S. stock market erase earlier losses.

From a surprising spike in Carnival cruise bookings to the reopening of Shanghai Disneyland, investors see plenty of evidence that consumer appetite can rally.

At the same time, the carrot of negative interest rates is driving additional risk tolerance among Dow bulls.

Dow Struggles But Hopes of  a V-Shaped Recovery Remain

The Nasdaq was once again the top performer in an uneven U.S. stock market, and the tech-heavy benchmark easily outpaced its blue-chip peers.

dow jones industrial average, djia
The Dow Jones only fell slightly on Monday as the 4 million coronavirus case milestone failed to dent enthusiasm on Wall Street. | Source: Yahoo Finance 
  • The Dow ticked 1.89 points or 0.01% lower to 24,329.43.
  • The S&P 500 rose 0.39% to 2,941.24.
  • The Nasdaq soared 1.21% to 9,231.60.

The Dow had fallen sharply at the opening bell, so even this sideways move represented a fairly substantial intraday recovery.

Crude oil prices trended lower after a surprise supply cut from the UAE failed to provide any lasting support for WTI. Front-month futures dropped 0.61% after a brief spike faded rapidly.

With no major economic data releases for the Dow to digest, coronavirus statistics were in focus. Worldwide cases passed the ominous 4 million marker over the weekend, and more than 1.3 million of those COVID-19 infections come from the United States.

Yet states continue to ease lockdown restrictions, and even the worst-hit state – New York – has begun to allow some counties to crawl back to “normalcy.” 

Much more important for the U.S. stock market than official reopening dates is what demand will look like when they arrive. And with travel bookings already surging, it appears that pent-up demand is a very real thing.

It’s one thing for Airbnb bookings to rebound  as lockdown restrictions ease. It’s quite another for cruise lines like Carnival to report a 600% spike in reservations – given that cruise ships were a very visible COVID-19 transmission vector .

Another indicator of what the U.S. can expect may be seen in China, where the opening of Disneyland Shanghai has been met with impressive demand.

If consumer demand continues to exhibit this level of strength, then Lars Christensen from “The Market Monetarist” says that the economy could quite possibly make a V-shaped recovery .

Numerous policy mistakes have been made around the world both in combating and containing the pandemic and in terms of the monetary and fiscal response to the crisis, and more mistakes are likely to be made, but we should nonetheless remember that market economies emerge much faster from negative supply shocks than from demand shocks.

Stock Market Cheers Hopes of Negative Rates

Another critical fundamental simmering below the surface for the Dow Jones is the Federal Reserve’s historic stimulus injection.

Futures markets are now pricing in a chance of negative interest rates by April 2021 next year .

While Fed Chair Jerome Powell has pushed back against the likelihood of this happening, investors refuse to take it off the table considering the historic emergency actions the central bank has already taken.


Harvard economist Kenneth Rogoff believes that there is compelling evidence that the U.S. (and global) economy would benefit from taking the prime rate below zero.

Writing in a recent column for Project Syndicate , he urged the Fed to consider sub-zero rates.

Emergency implementation of deeply negative interest rates would not solve all of today’s problems. But adopting such a policy would be a start. If, as seems increasingly likely, equilibrium real interest rates are set to be lower than ever over the next few years, it is time for central banks and governments to give the idea a long, hard, and urgent look.

Dow Stocks Mixed as Apple Rises & Boeing Falls

It was a very mixed day in the Dow 30, with little obvious patterns to explain why some stocks struggled and others gained.

Dow Jones heavyweight Apple rose 2.1%, though Boeing slid nearly 2.7% amid a gloomy outlook for the airline industry.

Oil supermajors Chevron and Exxon Mobil both fell more than 1% as crude slipped, and global risk-bellwether Caterpillar lost 2.2% despite the growing argument for the odds of a V-shaped recovery.