Before The Bell
Stocks staged a major upside reversal to start the week. Monday saw the benchmark Dow Jones Industrial Average recover from a 762-point loss in the morning and end up posting a 158-point advance.
Cementing the turnaround was an announcement by the Federal Reserve that it would begin implementing a direct corporate bond purchasing program this week. The Fed’s recent corporate bond buying had previously been limited to ETFs.
The positive news stood in contrast to last week’s dour assessment of the economy from the central bank. Lingering bearishness on the part of investors stemming from that gloomy view was part of the cause for the poor performance by stocks at the start of trading. In addition, news that coronavirus cases were rising in a number of states that are reopening, as well as in China, weighed on sentiment.
However, the size of the drop in stock prices between last week and early Monday created an opening for bargain hunters to employ the usually reliable ``buy-the-dip’’ strategy. The major indexes bounced off their lows by mid-morning and gradually edged toward breakeven. The Fed’s early afternoon bond-buying announcement then fueled the fire.
All of the market’s major sectors rose on the day, and the other major averages also climbed, with the S&P 500 tacking on 25 points and the NASDAQ at the head of the pack in terms of percentage gain with a 137-point jump.
This morning, optimism continues to reign ahead of the market open, with stock futures pointing to a nice gain at the start of trading. Also providing support is the view that more fiscal stimulus out of Washington is on the way, perhaps to the tune of $1 trillion.
The help will likely provide the economy with valuable assistance in the early stages of its recovery. To be sure, a great deal of uncertainty remains, particularly with respect to sectors such as travel and leisure, where there is still reluctance on the part of consumers to go about in public as much as before the pandemic.
Among individual stocks, shares of homebuilder Lennar (LEN) jumped ahead of its earnings release after yesterday’s closing bell. The company reported strong profits and provided a bullish forecast for the housing market.
Good news on the housing front is welcome since activity in that sector creates jobs in other areas.
Still, investors should not throw caution to the winds with elevated stock valuations creating bouts of volatility.
- Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
