The Dow Jones roared back to life on Wednesday, leaving analysts scratching their heads about the catalyst.
The United States recorded its deadliest day of the coronavirus pandemic yet, though Dow bulls may be focused on the slowing rate of hospitalizations in the West. The formal reopening of Wuhan in China is another potential bright spot for the global economy.
All three of the major U.S. stock market indices rallied ahead of the close on Wednesday.
In the commodity sector, oil made an inexplicable 9% spike late in the session to clear the $25 per barrel level, despite a vast 15 million barrel build in domestic inventories.
FOMC minutes indicated the Fed will do as expected, and keep rates at zero until the coronavirus outbreak is over.
In the political sphere, Wall Street’s public enemy number one – Bernie Sanders – dropped out of the presidential race.
Sanders would have been a major threat to the stock market, and the mainstream media was keen to paint this as the trigger for the Dow Jones bounce. But the race was already a foregone conclusion in favor of Joe Biden, and it’s hard to believe Sanders’ defeat hadn’t already been fully priced into stocks.
But it’s hard to blame the media for grasping at straws to justify today’s recovery. CNBC analyst and fund manager Jim Cramer said that he had spoken with billionaire David Tepper and that neither of them can figure out what’s going on.
With soaring unemployment and nearly a third of apartment renters missing payments, the U.S. economy is as weak as it has been for almost a decade.
Perhaps Jim should look to some of his other friends to find the cause:
Unfortunately, the looming risk of the sudden stop might render even the mighty Federal Reserve redundant.
Historically, Federal Reserve emergency intervention efforts have been very bullish for the Dow Jones – but only in the longer term.
Nordea analyst Andreas Steno Larsen warns that without demand from the economy, we shouldn’t be seeing this kind of a positive reaction in equities yet.
Essentially, you can’t print demand or profit during a politically decided recession, and if everyone believed we were in a late-cycle to start with, isn’t it a high risk that companies don’t re-hire to start with?
When a lot of money is printed versus the overall size of the equity and debt market, it is usually a bull signal, but not until a while after. Maybe 2021 will be the most ketchupped market ever, but we likely need to go lower before.
If it’s too early to give the Fed the credit, we have to look at the other elephant in the room: the spread of the coronavirus.
Wall Street is fixated on the COVID-19 infection curve in the U.S. and Europe, and there is evidence that both of these are bending in the right direction.
But the outlook isn’t completely bright. Terrible news struck Italy on Wednesday, which reported an acceleration in new cases. And Singapore is dealing with a worrying “second wave” of infections. All this points to a very messy exit from lockdown in the U.S.
So why are traders so bullish? It may be because Wuhan is open for business, marking a monumental achievement for a city that bore the full-brunt of COVID-19.
This shows Wall Street that life can eventually get back to some degree of normalcy in New York City, the worst-hit metropolis in the country.
Yet a couple of caveats remain. It took a full 11 weeks – and incredibly draconian measures – to get Wuhan back online.
If U.S. lockdowns persisted for a similar period, the economy would need at least one more drastic bridge loan from the federal government. And it’s still not clear what the ramifications of more helicopter money will mean for the United States’ multitrillion-dollar debt load in the future.
A steady day in the Dow 30 saw Apple stock moving higher again with a 2.4% rally.
Boeing ticked up 3% as volatility continued to trigger wild fluctuations in the aerospace stock.
Raytheon Technologies enjoyed a 9.8% gain as investors mulled the ramifications of its high-profile merger.
Only Disney and Walmart were narrowly in the red. The other 28 members of the Dow Jones recorded gains.