Before The Bell
The stock market continues to rock and roll. On point after collapsing last week, with fears of the deadly coronavirus causing a correction in the financial markets (i.e., a drop of at least 10% in the leading equity averages), stocks rebounded sharply on Monday on hopes that the virus had peaked and that shuttered factories might soon re-open. Then, the market reversed course and tumbled on Tuesday even though the Federal Reserve voted for an emergency 50-basis-point cut in the federal funds target.
Such attempts at curative action often are met with applause in the financial markets. This time, though, after an initial bounce upward, realities set in and many questioned whether such a rate cut would help, as this is a supply shortfall rather than a slippage in demand. Then, yesterday, the news that former Vice President Joe Biden had done well on Super Tuesday primary day helped assuage some fears of a Bernie Sanders nomination. Health care stocks were the biggest beneficiaries.
Such attempts at curative action often are met with applause in the financial markets. This time, though, after an initial bounce upward, realities set in and many questioned whether such a rate cut would help, as this is a supply shortfall rather than a slippage in demand. Then, yesterday, the news that former Vice President Joe Biden had done well on Super Tuesday primary day helped assuage some fears of a Bernie Sanders nomination. Health care stocks were the biggest beneficiaries.
As to the latest session, Dow Jones Industrial Average component UnitedHealth (UNH) saw its stock have its best day in more than a decade, cheering the good night for Mr. Biden who promises more of a middle-of-the road approach on health care than Senator Sanders. The stock market also received a boost from constructive economic data. On this count there was good news out of the services sector where International Business Machines (IBM) reported that non-manufacturing activity improved more than forecast in February.
We should note that such issuances, along with a benign reading on manufacturing, which was released on Monday, reflected the world before the global impact from the coronavirus. Moreover, Automatic Data Processing (ADP) released its monthly reading on private-sector payroll growth during February and the numbers were encouraging. To wit, the nation created 183,000 new private payrolls. That number topped expectations. Finally, lawmakers struck a deal for more than $8 billion in emergency coronavirus funding.
Meantime, the buying continued into the close, even though the Federal Reserve's Beige Book issuance suggested that the coronavirus posed a risk to an otherwise benign business outlook. All told, the middle session of the week saw the Dow Jones Industrial surge by more than 1,100 points, the S&P 500 Index add 127 points, and the NASDAQ climb 334 points, with advancing stocks easily outdistancing declining issues in a broad-based advance.
Looking ahead to a new day now and following a succession of dramatic daily gains and losses and ahead of tomorrow's key release by the federal government's Labor Department on non-farm payrolls across the United States, the equity futures are poised to commence the new session with a resumption of the earlier downtrend.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
