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The Dow’s Unstoppable Climb Meets Its Match in Alarming Fed Prediction

Last Updated September 23, 2020 1:59 PM
Francois Aure
Last Updated September 23, 2020 1:59 PM
  • The Dow Jones brushed off early-session losses to mount a moderate recovery on Monday.
  • Despite widespread civil unrest, it was business as usual on Wall Street.
  • The Atlanta Fed’s devastating GDP estimate should give stock market bulls pause.

The Dow Jones shrugged off widespread unrest in the United States on Monday, clambering around 100 points higher despite opening to triple-digit losses.

But the stock market rally is looking increasingly curious. The economy still faces titanic threats, and a new estimate from one Federal Reserve branch predicts U.S. GDP will plummet an eye-watering 52%  in Q2.

Dow Jones Huffs and Puffs to More Gains

Dow Jones, Stock Market,
The Dow Jones made moderate gains on Monday despite civil unrest and a rather dire GDP estimate from the Atlanta Fed. | Source: Yahoo Finance 

All three of the major U.S. stock market indices clung to gains in late afternoon trading:

  • The Dow rose 89.55 points or 0.35% to 25,472.66.
  • The S&P 500 bounced 0.39% to 3,056.24.
  • The Nasdaq rallied 0.67% to 9,553.32.

The relatively minor moves in the stock market did not provide an accurate picture of the mood in the United States, where tensions are anything but mild.

Widespread looting and destruction of businesses in most major U.S. cities  didn’t seem to bother Wall Street, but that doesn’t mean it’s something investors should ignore.

Civil unrest is just another thing to stack on top of the pile of bearish fundamentals that have been building this year.

Riots aren’t going to bolster consumer spending, and the economy will never bounce back quickly if this “linchpin” doesn’t return with a vengeance.

Atlanta Fed Issues Brutal GDP Forecast

That’s all the more true after digesting the latest unofficial GDP estimate from the Atlanta Federal Reserve.

That forecast is nothing short of jarring. The bank’s “GDPNow” model anticipates real GDP growth will slide by 52.8% in the second quarter.

GDP, Dow Jones, Stock Market
The Atlanta Federal Reserve’s unofficial GDP estimate is now an incredible -52.8%. | Source: Atlanta Fed via Twitter 

Economic forecasts weren’t the only bad news for bulls today. The hard data releases weren’t pretty either.

ISM manufacturing PMI came in at just 43.1 , which demonstrates that U.S. industrial production is continuing to struggle as troubled supply chains and squashed demand filter through to a sector that was weak before the pandemic.

Economist James Knightley at ING believes that the job losses may have peaked overall , but the pain is going to continue for some time in the manufacturing industry:

So far, the 40 million or so jobs lost have been concentrated in retail, travel and hospitality but the pain is clearly spreading to other sectors. Friday’s unemployment rate figure will probably come in around 20%.

This will hopefully mark the peak as the re-opening process gathers momentum, but it is likely that job losses in the manufacturing sector continue over the coming months.

But Dow bulls don’t appear to be too concerned. The rising unemployment rate has so far failed to do any damage whatsoever over the last few weeks. There’s not any reason to expect this to change when the Labor Department publishes its monthly employment report on Friday.

Dow 30 Stocks: Boeing Flies, Pfizer Gets Crushed

On a positive day for the Dow 30 , Boeing (NYSE: BA) was the index’s top performer. The aerospace giant rallied around 4% despite mass layoffs at the company.

Despite a dip in the price of crude oil, Chevron and Exxon Mobil posted gains of more than 1.5%. With global economies loosening coronavirus restrictions, investors are banking that energy consumption will rally.

Pfizer stock brought up the rear, trailing every other DJIA member by a considerable margin. PFE plummeted 7% after its breast cancer drug trials were canceled , damaging high hopes for a lucrative breakthrough.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the stocks mentioned.