The Dow Jones rallied on Wednesday as investors shrugged off a potentially seismic shift in the U.S. trading relationship with Hong Kong and China.
The Dow Jones Industrial Average (DJIA) brushed off some early-morning volatility to secure a second straight massive gain.
Up close to 900 points this week alone, the index even ignored another potential escalation in U.S.-China trade tensions that could impose long-term effects on the stock market.
The Dow headlined the U.S. stock market rally on Wednesday, racing 374.28 points or 1.5% higher. Add that to yesterday’s monster move, and the blue-chip index has shot back up to 25,369.39.
The S&P 500 (+0.91%) and Nasdaq (+0.29%) lagged behind, though both indices shook off early-session losses to post moderate gains in late afternoon trading.
Given boiling tensions between China and the United States, the U.S. stock market has been remarkably calm.
Nonetheless, investors will likely find the steady progression of the breakdown in relations concerning.
Secretary of State Mike Pompeo looks to be carrying the torch for the White House, and he delivered a sharp rebuke to Beijing today.
In a statement to Congress, Pompeo formally determined that Hong Kong is no longer politically autonomous from mainland China.
No reasonable person can assert today that Hong Kong maintains a high degree of autonomy from China, given facts on the ground.
This threatens to destroy the special status – and preferential tariff rate – that Hong Kong enjoys as a trading partner with the United States. The Chinese yuan reacted accordingly, weakening to 7.18 against the U.S. dollar.
The long-tail effects could prove far more damaging. Unfortunately for Dow bulls, China is unlikely to take this lying down, and the potential for further retaliation is extremely high.
Despite all of this tension, equity prices appeared to be mostly disinterested.
Amidst all the economic uncertainty, there was some very positive data in the United States. Mortgage applications are showing real signs of strength, underpinning a key source of financial stability in the U.S. and giving some confidence to Dow bulls.
Despite not seeing any hope of a sharp rebound in the domestic economy, ING’s James Knightley has seen enough to call for a major rebound in the U.S. housing market, stating in a recent report,
While we see little chance of a V-shaped recovery overall for the US economy, today’s mortgage applications data offers clear hope that the housing sector can bounce back vigorously.
Today’s data shows the US has recorded six consecutive weekly increases in mortgage applications for home purchases and the US is now well above the levels averaged through 2018 and 2019 – as the chart below shows, you can’t get much more V-shaped than that.
The ramifications for the Dow should be very positive if house prices help to stabilize the decline in consumer confidence.
But with so much speculation going on, a return of volatility has some analysts on edge, as Jim Cramer’s latest rant exemplifies:
The Dow 30 was able to power higher, despite the softness in the tech sector that saw Microsoft dip more than 0.4%.
Financial services giants American Express (+6.5%), Goldman Sachs (+5.8%), and JPMorgan Chase (+5%) anchored the rally.
It was a strange day for Boeing, whose stock rallied 2% despite the fact it is cutting 12,000 jobs – with thousands more anticipated.
The negative outlook for the airline industry is obviously a significant concern, with jet oversupply and the ongoing headwinds for the 737 MAX making it difficult for the manufacturer to justify maintaining staffing at current levels.
Caterpillar stock enjoyed a 3% rally, brushing off U.S.-China tensions.