Here’s Why the Dow Jones Rallied So Unexpectedly Today
The stock market's risk-on recovery was somewhat surprising given that crude oil prices are in freefall once again. | Source: AP Photo/Richard Drew
- The Dow Jones rose over 1.5% to start the week, even as oil prices turned sharply lower.
- CNBC believes its new coronavirus index explains the stock market rally.
- But “Bond King” Jeffrey Gundlach believes the Dow’s rally all comes down to the Fed.
The Dow Jones rallied on Monday as several U.S. states prepared to reopen their economies and the Federal Reserve continued its gigantic easing program.
The move was even more impressive given the sudden collapse in crude oil and the disconcerting milestone that the U.S. coronavirus outbreak just surpassed.
Economists at CNBC believe they have found what is driving the stock market, and it’s all to do with testing and vaccines for COVID-19. But “Bond King” Jeffrey Gundlach has a very different explanation.
Dow Jones Rallies, Crude Oil Crushed as States Ease Coronavirus Restrictions
All three of the major U.S. stock market indices rallied on Monday and accelerated their gains ahead of the closing bell:
- The Dow rose 402.64 points or 1.69% to 24,177.91.
- The S&P 500 gained 1.65% to trade at 2,883.57.
- The Nasdaq rallied 1.22% to 8,740.19.
The risk-on recovery was somewhat surprising given that crude oil prices are in freefall once again. As vast numbers of oil tankers are building up off the coast of California , a 23% decline has prices back around $13 per barrel.
Prominent “Mad Money” host Jim Cramer believes there is a real danger of them going negative once again.
Coronavirus cases in the United States will surpass the 1 million mark when the final data comes in Monday, but many states are beginning to ease lockdown restrictions.
While possibly beneficial to the Dow in the short term, consistent White House guidance suggests no state should be making the leap until at least Friday.
CNBC Believes It Has Found the Reason for the Stock Market Rally, But Gundlach Disagrees
CNBC, one of the largest financial media outlets in the world, believes it has identified the catalyst behind the big move higher in the stock market.
Here’s how CNBC explains their new index:
The S&P 500 and the CNBC Covid-19 Testing & Treatments Index have moved in near lockstep since the market bottomed on March 23. A look at their movement since the March bottom reveals the S&P 500 and the Covid-19 index tend to rise and fall at the same time.
The relationship between the two reveals just how important coronavirus news is to Wall Street investors, who have, for weeks, said a reliable treatment is key to unleashing financial markets and an eventual return to all-time highs.
Given that two of the most heavily weighted stocks in this index are Dow giants Pfizer and Johnson & Johnson, this “explanation” can be applied to the Dow Jones recovery as well.
For those who are skeptical of CNBC’s theory, “Bond King” Jeffrey Gundlach is here to back you up.
The bearish CEO of DoubleLine Capital believes that Fed action is what is causing the stock market to rally. He anticipates a “lower low” and cites substantial “social unease” from the 26 million job losses seen in the United States.
Gundlach is not alone. More and more fund managers are calling for a market crash as the Fed’s balance sheet looks on track to hit $10 trillion this year .
Dow Stocks: No Boeing Dividend for “Years” & Apple Delays Flagship iPhone Production
On a positive day for the Dow 30 , Boeing stock ticked slightly higher – even after CEO David Calhoun spoke at the company’s annual meeting and said it would be “years” until the company started paying dividends again.
Given how popular yield investing is in today’s low interest rate environment, losing this crucial support could be a severe headwind for the aerospace manufacturer’s stock price in the years to come.
Apple stock traded sideways on the day after news broke that it would be delaying its flagship iPhone .
It was curious to see oil supermajor Chevron in the green, but it posted a 3.5% rally despite the gigantic dip in crude oil. Fellow energy stock Exxon rose 1%.
Almost the entire index rose on Monday, but the remainder of the week could be very volatile for the DJIA. Boeing, Apple, Microsoft, Caterpillar, and many more Dow members release earnings over the next few days.
