- The Dow Jones slipped from its highs on Thursday afternoon.
- Optimism about the Federal Reserve’s intervention in the high-yield debt markets helped push the Dow Jones up.
- A sudden collapse in oil prices hit the stock market at the end of the session as OPEC canceled a controversial supply cut.
The Dow Jones rebounded on Thursday, although a sudden drop in oil prices drove the stock market far above its highs as OPEC negotiated potential supply cuts.
The addition of fuel to the rally was the announcement that the Federal Reserve will plunge into the high-yield debt markets to support the buoyant economy.
Next week, an avalanche of Dow 30 equity earnings reports is forming a massive test for the stock market recovery.
Dow Jones slips from highs as oil prices plummet
The top three US stock indexes all held on to gains before the close, although each came back far from its session high:
- The Dow Jones rose 270.05 points or 1.15% to 23,703.62.
- The S&P 500 advanced 1.21% to 2,783.13.
- The Nasdaq rose 0.28% to 8,113.78.
The intraday decline in the stock market accompanied a collapse in the price of oil. Crude oil fell 6% to $ 23.50 a barrel after OPEC Secretary General Mohammad Sanusi Barkindo called the fundamentals of oil “terrifying” and “beyond all we have never seen”.
OPEC is chopping the terms of a reduction in production to stop this “horrible” reduction in supply, but not all member countries are on the same page. Mexico currently appears to be suspending the agreement.
Meanwhile, the US economy had another surprisingly bad week for initial jobless claims, with 6 million more Americans unemployed. This was accompanied by a substantial drop in consumer sentiment.
Bulls rejoice as Fed pledges to buy unwanted bonds
The Dow Jones rally resisted this brutal data thanks to a surprise announcement from the Federal Reserve, which plans to increase the bet in its dramatic effort to avoid a collapse of the financial markets.
Presenting his plans to further strengthen local and state economies, Fed President Jerome Powell said:
Our emergency measures are reserved for truly rare circumstances, such as those we face today. When the economy is on the way back to recovery and markets and private institutions are once again able to function… we will put these emergency tools aside.
This emergency toolkit includes a very controversial transition to risky high-yield debt. Previously considered untouchable, this pivot triggered a strong reaction among investors and economists who consider it a violation of the Federal Reserve charter.
This raises a sobering question. If the Powell-led Fed is doing interventions like this with the Dow Jones on the rise, how bad is the data the FOMC is looking at?
If James Knightley, ING’s chief international economist, is right, it is truly horrible.
Knightley argues that lost production will not be recovered until 2022 lost are recovered soon.
Our base scenario is that we begin to see a continuous process of reopening in the United States from mid-May, but which always involves some form of social distancing with more stringent tests in place.
This means that the employment opportunities for the millions of redundant workers, particularly in the leisure and hotel, retail and transport sectors, will remain somewhat limited, and unemployment will slowly slow.
Given the visibility of the negative impact of coronavirus on the real economy, the strong recovery of the stock market has prompted several investors to scratch their heads.
Wall Street seems to be obsessed with improving the prospects for a pandemic in the short term. The White House has lowered its estimate of deaths from COVID-19 in the United States, and New York is forecasting a slowdown in hospitalizations.
Dow Stocks: first quarter earnings on the bridge next week
As the Dow 30 climbed steadily higher on Thursday, Boeing was again among the most volatile components of the index. The aerospace title rebounded 3.6% to recover above $ 150.
For next week, members of Dow JPMorgan Chase, Johnson & Johnson, Goldman Sachs and United Healthcare will post all of their results.
United Healthcare (-1.8%) and J&J (-2%) both slipped into the red on Thursday, while Goldman Sachs and JPMorgan Chase reveled in the aftermath of the Fed’s decision. They increased by 3.5% and 8.4% respectively.
This article was edited by Josiah Wilmoth.