- Jerome Powell and the FOMC kept interest rates on hold and soothed the U.S. stock market by extending its liquidity push through April 2020.
- Bolstering the Dow Jones, Apple, Boeing, and Dow Inc. enjoyed strong post-earnings rallies.
- Despite the positive mood, the coronavirus outbreak just crossed a disconcerting milestone.
The Dow Jones Industrial Average erupted higher on Wednesday, rising 65.21 points or 0.23% to 28,788.06 as the U.S. stock market shrugged off the coronavirus epidemic and concerning housing data.
Wall Street bulls continue to gamble that the economic impact of coronavirus will remain limited, trusting that the Federal Reserve’s liquidity push will help the stock market sustain its momentum.
All three major U.S. stock indices pared their gains ahead of the closing bell but held firmly in positive territory after the Fed left rates unchanged.
The Nasdaq rose 0.26% to narrowly outpace the Dow, but the S&P 500 gained just 0.07%.
Volatility is receding from the commodity markets. Crude oil fell just 0.7% after suffering a series of wild swings, and the price of gold ticked 0.3% higher.
Treasury yields dropped after the “nothing burger” Fed release bolstered risk appetite.
U.S. Stock Market Is Partially Sheltered from China Troubles
Pending home sales posted an unexpected 4.9% decline, but stocks quickly regained their optimistic bias.
The statistic fueling most of the confidence in the Dow Jones is the relative shelter that the U.S. stock market enjoys from the problems in China’s economy.
More than just reassure domestic investors, the United States’ surprising haven status could attract investment capital from regions with greater exposure to the Chinese market.
It certainly doesn’t hurt that sluggish inflation continues to encourage Jerome Powell and the Fed to keep buying U.S. Treasury bills further into 2020. Despite what the FOMC might say, it is evident that the stock market considers the balance sheet expansion the latest form of “stealth QE.”
Yet the Dow could still face trouble if the scale of China’s economic turmoil outstrips estimates.
China enjoys a considerably larger share of global GDP than it did during the SARS epidemic, so the coronavirus outbreak could create far more significant economic ripples, especially since it struck amid the Lunar New Year festival.
Focusing on this under-cooked comparison with the 2003 SARS outbreak, economists at ING released a detailed study on the synergy and significance of the Chinese economy within the global marketplace:
In economic terms… the global economy has become more integrated and intertwined since 2003. Global air traffic, for example, is currently more than twice as big as in 2003. Also, contrary to 2003, when Chinese tourism was mainly inbound-oriented, Chinese tourists have become a significant driver of global tourism.
Consequently, the speed of the virus spreading could be faster than in 2003, while at the same time, the negative impact on global growth could also be higher than in 2003.
The Dow Jones has several companies with massive exposure to China. Apple, Nike, and Boeing are a few of the largest.
If the epidemic continues to intensify, it’s hard to believe that the impact won’t leak significantly into the earnings of many Dow members.
For now, Powell’s admission that the Fed was “closely monitoring the situation in China” seems to have calmed jittery investors.
Dow Stocks: Apple Surges; Boeing Defies Weak Earnings
Another solid day for the Dow 30, saw two of the index’s most heavily weighted stocks driving higher.
Apple (NASDAQ: AAPL) remains the darling of the stock market, bouncing 2.7% after its earnings smashed expectations.
Boeing (NYSE: BA) was able to rise despite a considerable earnings whiff. BA shares rallied more than 2.3% because investors appear to be optimistic that the worst is over for the scandal-ridden aerospace manufacturer.
Dow Inc. was the top performer in the Dow Jones, rallying over 5% after a mixed earnings report.
This article was edited by Josiah Wilmoth.
Last modified: January 29, 2020 8:50 PM UTC