Big rebound for stock market
The Dow has its best day since 1933 on news Congress is close to agreeing on a stimulus package.
The Dow Jones industrial average climbed to its best day since 1933 as Congress and the White House neared a deal on Tuesday to inject nearly $2 trillion of aid into an economy ravaged by the coronavirus.
The Dow burst 11.4% higher, while the more closely followed S&P 500 index leaped 9.4% as a wave of buying around the world interrupted what has been a brutal month of nearly nonstop selling. Despite the gains, investors were far from saying markets have hit bottom. Rallies nearly as big as this have punctuated the past few weeks, and none lasted more than a day.
Both Democrats and Republicans said Tuesday they are close to agreeing on a massive economic rescue package, which will include payments to U.S. households and aid for small businesses and the travel industry, among other things. A vote in the Senate could come later Tuesday or Wednesday.
Investors have been waiting in frustration for such aid, particularly as the Federal Reserve has done nearly all it can to sustain markets, in
cluding its latest round of extraordinary aid that it adopted Monday.
“I don’t think there’s any more confidence in the fundamental outlook, but the fact that we’re making progress is good news,” said Katie Nixon, chief investment officer at Northern Trust Wealth Management. “It’s sort of like, keep the patient alive in the emergency room so you can provide some treatment options.”
The Dow rose 2,112.98 points, its biggest point gain in history, to 20,704.91. The S&P 500, which is much more important to most 401(k) accounts, rose 209.93, or 9.4%, to 2,447.33 for its thirdbiggest percentage gain since World War II. The Nasdaq composite jumped 557.18 points, or 8.1%, to 7,417.86.
The buying circled the world. South Korean stocks were up 8.6%, Germany’s market jumped 11%, and Treasury yields rose in a sign that investors are feeling less fearful.
The market has seen rebounds like this before, only for them to wash out immediately. Since stocks began selling off on Feb. 20, the S&P 500 has had six days where it closed in positive territory, and all but one of them were gains of more than 4%. Stocks fell an average of 5% the next day.
“One of the things to be careful about is thinking this will be the panacea, or that this fiscal response will be sufficient,” said Eric Freedman, chief investment officer at U.S. Bank Wealth Management.
Ultimately, investors say, they need to see the number of new infections peak before markets can find a floor. The increasing spread is forcing companies to park airplanes, shut hotels and close restaurants to dinein customers.
President Trump said Tuesday during a Fox News virtual town hall that he hopes to “open up” the economy by Easter. Analysts said the pronouncement wasn’t a contributor to the day’s huge rally, which was mostly due to the stimulus hopes.
Economists are topping each other’s dire forecasts for how much the economy will shrink this spring because of business closures, and a growing number say that a recession seems inevitable.
Some of the market’s areas hardest hit by the closures, though, led the way higher Tuesday as expectations rose for aid from the federal government.
Norwegian Cruise Lines, MGM Resorts and American Airlines were all up at least 33%. Energy companies and banks were also strong, though all remain well below where they were a month ago.
Governments and central banks in countries around the world are unveiling unprecedented levels of support for their economies in an attempt to limit the scale of the expected virusrelated slump. Germany, a bastion of budgetary discipline, also approved a big fiscal boost.
The gains came even as the first reports arrived showing how badly the outbreak is hitting the global economy. In the United States, a preliminary reading on business activity in March showed the steepest contraction on record, going back to 2009. Reports were also gloomy for Europe.
“Everyone was prepared for a set of shockers, and that is precisely what we got, but they are not a surprise,” said Chris Beauchamp, chief market analyst at IG. “It is at times like this that the market’s propensity to look forward is demonstrated most effectively.”
More dour data is nearly assuredly on the way. Economists expect a Thursday report to show the number of Americans applying for jobless claims easily set a record last week. Some say the number could be way beyond 1 million, amid a wave of layoffs, topping the prior record of 695,000 set in 1982.
Helping to lift sentiment in markets is news from China that it is preparing to lift the lockdown in Wuhan, the epicenter of the outbreak, and from Italy reporting a reduction in the number of new cases and coronavirusrelated deaths.
Despite Tuesday’s big gains, it’s no time to get complacent, said Adam Taback, chief investment officer for Wells Fargo Private Bank.
“We would caution that the danger is not all behind us at this point,” he said. “We still have not seen numbers that give us an indication of just how bad things are. Today was a good day, but we would not necessarily see this as turnaround time.”