Hi Everyone,
The stock market finished with significant gains today, and the Dow and the S&P 500 had their best session since early-April, as Moderna’s (MRNA) positive vaccine trial, together with the Fed Chair’s encouraging words, triggered an epic rally in stocks. The Dow was up 912, or 3.9%, to 24,597, the Nasdaq gained 220, or 2.4%, to 9,235, while the S&P 500 rose by 90, or 3.2%, to 2,954. Advancing issues outnumbered advancing issues decliners by an 11-to-1 ratio on the NYSE, where volume was heavier than it has been of late.
Traders said that today’s session was nothing short of spectacular for bulls, as small-caps and cyclical issues especially shined due to the positive headlines. As one trader explained, “The Russell 2000 rose by more than 6% today, and all of the key cyclical industries registered lofty gains. The broad rally could mean that thanks to the vaccine-breakthrough, stocks entered the next phase of the post-crash rally following last week’s pullback.”
Even though last week, several FOMC members denied that the Fed would be considering negative interest rates, today, Jerome Powell said they were ready to deploy further tools to support the economy and asset prices. With the Fed’s backing, should the push for a vaccine continue to be successful, it will be very hard to stop the bullish juggernaut on Wall Street. This is true even considering the bleak outlook for some of the emerging economies and the weakest European nations. The U.S. economy has proven time and again that it can withstand international headwinds.
Besides the Russell 2000, a whole host of other reliable risk measures confirmed today’s sharp risk-on shift, with the Volatility Index (VIX) plunging below 30 again, credit spreads narrowing considerably, and Treasury yields surging higher across the curve. The price of crude oil hit its highest level since mid- March thanks to the bullish Chinese demand report, copper also had its best day since the crash, but gold and the dollar were hit hard as safe-haven flows reversed, following last week’s “flight-to-safety” rally.
German Chancellor Angela Merkel and French President Emmanuel Macron agreed to back a new $550 billion rescue package, adding to the buying pressure in financial markets today. The fund, which needs the approval of all members of the European Union (EU) will focus on the hardest-hit countries in the Eurozone, which is a big step in the right direction, and gives hope to investors that a deep recession in Europe can be avoided. The agreement falls short of Italy’s $1.1 trillion proposal, and it might require further action down the road. Since the reopening push is going well in Europe, the package could stabilize the struggling European financial sector.
The housing market will remain in focus tomorrow, in terms of economic releases, with building permits and housing starts both coming out before the opening bell. Both measures are expected to drop by the most on record. However, thanks to the successful reopening push, the rally in the real estate sector could continue as activity is predicted to rebound this month. Fed Chair Jerome Powell is also due to testify on the COVID-related stimulus packages, alongside Treasury Secretary Mnuchin in Washington, and just like today, Mr. Powell’s words could make major waves again.
As always, have a great evening and stay tuned!!!
Joe
