Markets News & Opinions

The Dow Is Rallying Because Wall Street Won’t Listen to the Fed

Two dire warnings from the Fed and the WHO on the coronavirus failed to upset the Dow Jones as it rallied more than 300 points today.

  • The Dow Jones rallied more than 300 points on Wednesday, erasing most of the previous day’s losses.
  • Stock market bulls ignored several big warnings from the Federal Reserve and World Health Organization.
  • The Dow is proving remarkably resilient as Donald Trump gets tough on China.

The Dow Jones leaped higher on Wednesday, erasing most of Tuesday’s losses and putting the index on the cusp of a technical breakout.

Helping improve the mood was an astonishing drop in U.S. crude oil inventories, while investors ignored warnings from health officials and the Federal Reserve.

Dow Jones Rallies as Investors Shrug Off Fed Minutes

The Dow Jones rose higher on Wednesday as investors ignored warnings from both the WHO and FOMC. | Source: Yahoo Finance

Volatility is dominating the U.S. stock market this week, and Wall Street’s three primary indices each experienced another big swing.

  • The Dow rose 381.5 points or 1.58% to 24,588.36.
  • The S&P 500 rallied 1.7% to 2,972.54.
  • The Nasdaq jumped 2.02% to 9,370.31.

Though not its primary catalyst, a shocking a 5 million barrel drop in crude oil inventories supported risk sentiment. Analysts expected inventories to climb by 1 million barrels.

This is a positive development for the economy because it helps lift the value of crude oil (of which the U.S. is one of the world’s top producers) and indicates that activity is on the rise once again.

U.S. crude last traded at $33.50, up roughly 5% on the day.

Fed Warns of ‘Unprecedented’ Decline in Economic Activity as States Reopen

The latest Fed minutes release failed to move markets, even though it included some pretty alarming warnings about the health of the U.S. economy:

Participants judged that the effects of the coronavirus outbreak and the ongoing public health crisis would continue to weigh heavily on economic activity, employment, and inflation in the near term and would pose considerable risks to the economic outlook over the medium term… [and] the second quarter would likely see overall economic activity decline at an unprecedented rate.

Investors continue to cheer the U.S. economy’s grand reopening. Every state has begun to ease stay-at-home policies, and in California, local officials teased that Los Angeles County could reopen by July 4.

Belying this optimism, the World Health Organization announced that Wednesday saw the largest jump in coronavirus infections in a single day since the outbreak began.

Today saw the biggest daily jump in coronavirus cases so far. | Source: WHO via Twitter

Global coronavirus infections are about to surpass the 5 million case mark. And in the U.S., the death toll is creeping closer to six figures.

One of the key storylines for the Dow Jones has been the development of a vaccine – or at least a treatment – to help reduce the severity of the COVID-19 outbreak.

Drug trials from Moderna and Gilead Sciences have both caused volatility on Wall Street, but traders don’t seem to be learning their lesson.

As Joshua Mahony, senior market analyst at IG, said in a statement shared with,

It seems traders should treat every trial result with caution given the volatility around both Gilead and Moderna announcements over recent weeks. Every specialist seems to indicate that a vaccine will take some time to develop, yet markets treat each trial announcement like we are on the cusp of a huge breakthrough that could see everything swiftly return to normal.

Vaccine development progress and a resumption in economic activity have definitely helped support the Dow.

Trump & China Continue to Escalate the Hostile Rhetoric

But with Donald Trump piling pressure on China, the mood is not quite as buoyant as surging equity prices would suggest.

Trump continues to blame China for the coronavirus pandemic. | Source: Donald Trump via Twitter

A return to the trade war with more than 30 million Americans out of work risks thrusting the economy into a depression.

Even notable China hawks are expressing concern as Trump’s hostile rhetoric incites retaliation from Beijing against the U.S. and close trading partners like Australia.

Dow 30 Stocks: Apple & Boeing Rally as Risk Rebounds

The Dow 30 was a much happier place on Wednesday, and major stocks like Apple and Boeing posted rallies of around 2%.

Leading the way were American Express and Walt Disney, rising 4.5% and 4.3%, respectively.

Coca-Cola was up almost 3%, despite its CEO warning that the economic damage from COVID-19 is only just being seen.

Johnson & Johnson and Merck were the dogs of the Dow Jones, though neither posted more than a 1% loss.

Last modified: September 23, 2020 1:57 PM

Francois Aure

Financial speculator & author living in the hills in Los Angeles. J.D. but very much not a lawyer. Favorite trading books are anything written by Jack Schwager. | Follow Me On Twitter | Email Me