- Bulls and bears collided on Monday, as the Dow Jones reversed from its highs to secure a 150 point rally.
- ISM manufacturing impressed, helping lift the Dow early, but economists are concerned this will be a temporary peak.
- A slide in crude oil is weighing on the stock market.
The Dow Jones came under pressure late in the session on Monday as dip-buyers ran into rejuvenated bears.
A plunging oil price suggests fears over global growth continue to rage amid the coronavirus outbreak in China.
While stocks rallied after an impressive ISM manufacturing number, the real test will be next month when more of the epidemic’s impact has filtered through.
Dow Jones Slips While Oil Price Plunges
Among the major U.S. stock market indices, the Nasdaq was comfortably the top performer with a 1.3% rally that was fueled by another incredible rally in Tesla.
The Dow Jones Industrial Average brought up the rear with a gain of 180.59 points or 0.64% that lifted the index to 28,436.62.
The S&P 500 was a little higher than the Dow with a 0.83% move.
Volatility rocked the energy sector, with demand fears hammering the price of oil [Yahoo Finance]. Crude edged below $50 per barrel before bouncing slightly, but the oil price remained down over 2.9% on the day.
Precious metals also took a hit. The price of gold slid 0.4%, while silver was down a dramatic 1.95% because the coronavirus is expected to pummel Chinese consumption.
Stock Market Surges After ISM Manufacturing Impresses
It was clear that an impressive ISM Manufacturing PMI figure (50.9) helped catalyze today’s rally in the Dow Jones. Investors took it as evidence that the decline of trade war fears has begun to lift to this struggling sector.
Stocks lost momentum later in the session as forward-looking bears theorized this could only be a temporary peak.
They warn that the coronavirus outbreak in China has the potential to be much more damaging to the U.S. economy than the trade war was.
ING Chief International Economist James Knightley warns that manufacturing business confidence will struggle to build on January’s bumper PMI reading. He says that the risks remain “skewed to the downside” [ING]:
We know that production in China is being impacted, and this could have adverse implications for US supply chains in coming months while there are worries about what it might mean for global demand in general, which could make manufacturers more cautious…
As such, while today’s report is very good news, we are nervous that the risks to activity in general remain skewed to the downside with manufacturing looking particularly vulnerable.
To make matters worse, Beijing’s struggles with the coronavirus epidemic have put its phase one trade deal purchase commitments in question [SCMP].
The White House may overlook a breach of the text’s agreement, given its penchant for de-escalation ahead of the 2020 election. But Trump is nothing if not unpredictable.
Stock Market Bulls Fear Bernie Sanders Will Have a Big Night in Iowa
This brings us neatly to the next fundamental catalyst weighing on the Dow. The Democratic presidential primary officially kicks off tonight in Iowa.
Left-wing Bernie Sanders is leading the charge, and the unprecedented decision for the Des Moines Register and its partners to cancel the release of its Iowa poll for the first time in 76 years has only fueled speculation that the anti-establishment Sanders could have a historic night.
An overnight shock could be in the cards for the U.S. stock market if the senator from Vermont wins big.
Dow Stocks: Big Oil Struggles but Nike Surges
It was a generally positive day in the Dow 30 [CNN], as a big performance from Nike (+4%) helped drive the relief rally in the stock market. Aggressive analyst upgrades were the catalyst for the apparel giant [CNBC], which has substantial exposure to China.
Apple (NASDAQ: AAPL) lost some ground after announcing that its China-based businesses would be closed through February 9th.
Boeing (NYSE: BA) slipped 0.4% after a technical issue with a 767 jet led to a spate of worrisome headlines.
Unsurprisingly given the darkening outlook for the price of oil, major energy companies endured a tough day. Chevron and Exxon Mobil fell 0.8% and 2.6%, respectively.
This article was edited by Josiah Wilmoth.
Last modified: February 3, 2020 8:12 PM UTC