Before The Bell
Stocks rallied into the close on Monday to begin the week on a modest up note despite weakness early in the session. The Dow Jones Industrial Average was lower by as much as 362 points at one point, but managed a 26-point gain at the close. Elsewhere, the S&P 500 rose 12 points and the NASDAQ turned in the best performance on a percentage basis, rising 106 points.
Some of the bearishness at the outset stemmed from the mixed outlook for reopening the economy. Investors have been willing to a degree to look past the economic weakness caused by the pandemic that has resulted in the closure of many businesses. The thinking is that consumer spending will start to get back on track once travel restrictions and social distancing measures are lifted.
But the normalization process is taking longer than many had anticipated, and appears as if it will move ahead only tentatively. A number of government officials are wary of moving too fast, since doing so could lead to more virus cases. There is also a feeling that consumers will not have the wherewithal to spend as freely as before the health crisis, since unemployment levels have spiked in historic fashion.
Weaker spending patterns appear to be the case in China, which analysts are using as a rough guide to the recovery here. Consumers in the world’s most highly populated nation have become more cautious amid the economic downturn.
Wall Street also took note of the threat from the White House over the weekend of another round of tariffs on China as a punitive measure for not being as transparent about the virus as it might have been.
Another factor to consider was word that Berkshire Hathaway’s (BRKB) legendary founder Warren Buffett did not see all that much attractive to acquire. The disclosure that his company had sold its airline holdings weighed heavily on that sector. Mr. Buffett did assert his confidence that the economy would come back, and we wholeheartedly agree with that assessment. It is only a matter of how quickly.
Elsewhere, the energy and technology sectors fared the best on the day, while financial and industrial stocks lagged. Energy stocks benefited from firming in the oil market, where OPEC-Plus production deferrals have kicked in.
As for Tuesday, the market shows signs of maintaining momentum early on, in view of optimism about economies around the world reopening for business.
- Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
