Risk-on engulfed the Dow Jones on Monday. Boeing stock led the index higher, but there were plenty of factors driving appetite for equities.
A seemingly buoyant housing market, China’s vaccine progress, and an apparent stabilization in virus-related fatalities all contributed to the stock market upswing.
It was a great day for all three major U.S. stock market indices, and each headed markedly higher during the late afternoon session:
It was undoubtedly good news for the Dow to see that the U.S. housing market remains strong. In May, pending home sales shot up 44%, a significant improvement from the previous reading.
Although indirectly related to stocks, this level of demand is a good indicator of robust household consumption. But whether labor market disruptions prevent some of these pending sales from reaching the finish line is worth paying attention to.
Looking at the pandemic data, it’s clear that bulls and bears alike can find talking points to support their investment theses.
It’s true that more testing has led to more reported cases, but it’s also true that the spread is outpacing testing.
And yet Wall Street seems relieved that fatalities are not rising at the same rate as new infections, which could reduce the likelihood of any further significant lockdowns.
Additional good news on the virus front was China’s incredible vaccine headline. A vaccine candidate (not just a treatment) has been approved for military use.
As with a lot of Beijing stories, traders will take this with a grain of salt. But the idea that any kind of effective medical defense is feasible is still market-friendly news.
For Dow bulls hoping that this will now be a one-way train for equity prices, the reality may not be as simple.
Senior economist Sebastian Galy at Nordea Asset Management believes this will likely be the rally’s last leg, as a much more complex situation unfolds.
Galy wrote today:
We continue to suggest taking advantage of what should be the last post [pandemic] relief rally. The environment is set to become far more complex post-rally. Within growth stocks, we would suggest that Wirecard is an important warning that balance sheet analysis is of paramount importance as the tide pulls all boats.
The idea that balance sheets matter has been lost on investors over the last few weeks. If Galy’s predictions are correct, there are plenty of deeply overvalued companies for bears to sink their teeth into.
On a good day for the Dow 30, it was the ever-volatile Boeing stock supercharging the index.
A 13% gain came on the back of news that the 737 MAX was once again taking to the skies, albeit without passengers.
FAA testing has resumed, but bullish investors will be well aware that airline demand for planes is likely to be significantly less than before the jet was grounded in 2019.
Apple continues to be the bedrock of the Dow Jones, and its 1.9% rally anchored an already impressive day for the U.S. stock market.
Among the Dow’s 30 members, only Cisco and JPMorgan languished in the red, dipping 0.7% and 0.15% ahead of the close.
Last modified: September 23, 2020 2:01 PM