Before The Bell
Wall Street began this week on an emotional high. After all, the Dow Jones Industrial Average, which had surged from just over 18,000 in late March to more than 27,000 this past Monday, seemed set to advance further. The latest uptick, which included outsized gains this past Friday and Monday, had reflected better-than-expected data on the employment front during May. Armed with this reported good news, the blue chips had added some 1,300 points during the Friday and Monday sessions.
Then, as the Federal Reserve began its two-day FOMC meeting on Tuesday, stocks eased back somewhat. On Wednesday, equities started out lower, but as the Fed adjourned its two-day confab with no interest rate change and a strong suggestion that it would keep rates at these historically low levels until 2022, stocks rallied briefly. However, as the full impact of the Fed's position began to be felt, stocks reversed course yet again and fell into the close, save for the NASDAQ. In all, the Dow dropped 282 points.
Then, after the market closed on Wednesday, the futures sold off modestly, but then really dropped back in the pre-market hours yesterday, finally opening down by some 800 points. What turned things around? Several factors come to mind. First, there are fears that a second wave of the coronavirus might soon make its appearance, as a consequence of the nation's reopening and the relaxed approach to social distancing in so many states. Then, there is the Fed. Just what does the bank know about things to opt to keep rates so low for so long.
Furthermore, for all the talk about a strong recovery being on the way, the basic economic underpinnings remain woefully weak and could well stay that way for some time. Finally, the leading equity averages had just come too far too fast, surging about 50% from trough to peak in less than three months, with little to show for it in the economy. So, the sellers took over and the rout was on. In all, the major indexes continued to fall back throughout the session, with the Dow losing just over 1,900 points at its afternoon trough.
In sum, stocks would suffer their worst single-day setback since late March. Interestingly, the equity groups that had surged most recently on hopes for a smooth reopening of the economy led the way lower. Among the casualties yesterday were the airlines, the cruise ship operators, and a handful of retailers. Importantly, the news continued to show economic weakness, with another 1.5 million jobless filings being made, which took the cumulative 12-week unemployment total up to 44 million.
Meanwhile, the selling did not let up, and at the closing bell, the blue chip index had suffered a 1,862-point loss. The S&P 500 Index was off 188 points and the NASDAQ was down 527 points. Now, we shall see where we go from here. Greed, not fear, had ruled the Street for nearly three months. For one day, at least, the tables were turned. Looking forward, now, we see that the futures are showing a strong recovery trend in the pre-market hours. So, a solid opening is likely when traders return a bit later this morning. We shall see where we go from there.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
