Why Trump’s Coronavirus Tax Cut Failure Didn’t Crush the Dow

The Dow Jones reversed off its highs after Trump disappointed bulls Tuesday morning, but the president's words still lifted an oversold Dow.
Posted in: Markets
March 10, 2020 7:39 PM UTC
  • Donald Trump failed to deliver a fiscal package on Tuesday to counteract the coronavirus.
  • Despite this, the Dow Jones managed to secure a tantalizing recovery.
  • Here’s what drove the stock market’s relief rally today.

The Dow Jones overcame a bout of breakneck volatility on Tuesday as the U.S. stock market recovered from yesterday’s devastating crash.

President Donald Trump sparked the wild moves in the stock market by teasing a tantalizing stimulus package – and then failing to provide any concrete details.

After watching today’s rally all but evaporate, Dow Jones bulls planted themselves firmly in the driver’s seat for one simple reason. Investors don’t believe Trump will sit idly by as the stock market crashes.

Dow Bulls Take Trump Stimulus Bait

A wildly volatile Dow surged into the closing bell on Tuesday. | Source: Yahoo Finance

After taking a beating on Monday, the three major U.S. stock market indices enjoyed a brighter day on Tuesday.

  • The Dow bounced 708.25 points or 2.97% to 24,559.27.
  • The S&P 500 rallied 3.27% to 2,836.39.
  • The Nasdaq soared 3.42% to 8,222.55.

The oil market saw another big move – this time to the upside – and crude prices surged more than 11% to just under the $35 handle.

Brighter risk sentiment was negative for the price of gold, which lost 1.5%. The Japanese yen – a traditional haven currency – dropped 3% as the U.S. dollar surged alongside Treasury yields.

Stock Market Overcomes Trump Disappointment

The most remarkable thing about Tuesday’s rally was that it weathered a substantial disappointment from the White House.

The Dow opened to gains of nearly 1,000 points on hopes that President Trump had prepared some shock and awe fiscal package to help the U.S. economy fight the spread of the coronavirus.

Unfortunately, Trump’s aides were not on the same page. And the stock market nearly slid into decline as investors digested the news.

Yet Dow bulls found solace in the president’s desire for fiscal stimulus and a payroll tax cut, and his offers of help to at-risk industries were quickly priced into equities.

Is the Stock Market Crash Over?

There appear to be plenty of investors itching to dive back into the U.S. stock market.

But Sebastian Galy, a senior economist at Nordea Asset Management, is not confident the time is right. He warns of lingering volatility still filtering through markets:

We do not want to step in yet, because we believe that the regime of high volatility (see the large spike in VIX overnight) is here to stay for a while as a series of shock liquidity, oil followed by credit are still percolating through the system.

We believe though that by the end of next week this will have partially happened helping volatility to drop significantly.

If there is going to be more downside in the Dow Jones, it could suggest a severe recession has begun to grip the United States.

The good news is that at current levels (around -19%), this lightning-quick market reversal might be almost finished.

Recent history suggests the stock market may be bottoming already. | Source: LPL Financial

This research comes from LPL Financial, who noted that the stock market occasionally pulls back around 20% before continuing to climb higher. At least when the economy avoids sliding into a recession.

LPL Senior Market Strategist Ryan Detrick commented:

History tells us that the worst bear markets have taken place during a recession. Now the good news is not all bear markets occur in recessions; in fact, when the economy has avoided recession, stocks have bottomed right around down 20% over the past several bear markets.

Dow stocks: Apple Strong, Boeing in Free-Fall

A generally solid day for the Dow 30 saw Apple take the lead with a 4.7% rally that carried it back through $275 per share.

But another of the Dow Jones’ biggest stocks, Boeing, was under serious pressure. It recorded a 1.5% loss as the airline industry continued to endure a terrible demand shock from the coronavirus.

A rally in yields helped JPMorgan Chase post an impressive 7.2% rally, while the bump in crude oil launched Chevron to a 4.3% gain. Exxon Mobil (+2.3%) lagged its rival because its dividend looks more vulnerable to the crash in energy prices.

This article was edited by Josiah Wilmoth for CCN.com. If you see a breach of our Code of Ethics or Rights and Duties of the Editor, or find a factual, spelling, or grammar error, please contact us and we will look at it as soon as possible.

Last modified: June 24, 2020 1:03 AM UTC

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Francois Aure @bullishtulips

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. Email: bullishtulips@gmail.com,