Dow Stomps to 435 Point Gain, Here’s What Drove Wednesday’s Monster Rally
The Dow Jones Industrial average barreled above 25,000 for the first time in two months Wednesday, posting a 435 point gain in a massive one day rally, and charting a market breakout attempt against major resistance.
Dow Barrels Past 25,000
The rally follows a Tuesday of mixed results in U.S. equities markets with the NASDAQ and S&P 500 in the red for the day (by troubling 0.81 percent and 0.15 percent declines, respectively) and the Dow only barely in the green with a 51-point (or 0.21 percent) gain.
There was a general updraft in U.S. equities with the S&P 500 up 41 points (1.55 percent) and the NASDAQ up 1.03 percent for the day.
Bitcoin is having a good day as well, up more than USD$30 per bitcoin to 3,432.29 at the time trading stopped on the New York Stock Exchange.
Here’s Why The Dow Rallied Wednesday
Analysts point to renewed hopes for trade negotiation talks with China; strong Q4 2018 earnings reports from Apple, Boeing, and McDonald’s; and a rosy outlook from a meeting of the Federal Open Market Committee Wednesday, along with the announcement that interest rates would remain stable for the time being.
Let’s look at each of these factors in rising order of relevance to the Dow Jones Industrial average’s bull run on the stock market today:
3. China Trade Negotiation Hopes
President Donald Trump has suggested that the U.S. is close to striking a deal with China to end the trade war. | Source: AP Photo/Andy Wong, File
The Federal Reserve’s announcements Wednesday were the most conspicuous driving force behind the Dow rally. Many analysts, however, have mentioned China in passing, suggesting markets may have been buoyed in part by renewed hopes as investors await a resolution to U.S.-China trade negotiations.
Top officials from the United States and Chinese government sat down Wednesday in the Eisenhower Executive Office Building for two days of talks to negotiate an end to months of trade wars that have cost companies in both economies billions of dollars in lost business. They’re aiming for a March 2 deadline to reach an agreement.
2. Apple, Boeing, and McDonald’s Earnings
Apple (blue) and Boeing (red) surged on strong earnings reports, though McDonald’s shares failed to rise on better-than-expected earnings.
Seeing the two world economic powers come together is promising, but hardly definite. If they don’t reach an agreement by the deadline, the U.S. will enact tariffs on $200 billion worth of Chinese imports. But last quarter’s strong earnings by three of the Dow’s 30 blue chip stocks are very definite, and stirred markets Wednesday.
Boeing (BA) stock rose Wednesday like a plane taking off with its flaps down, posting an over 6 percent gain over the trading session after the aeronautics and arms manufacturer reported fourth-quarter revenues that rose far above expectations.
McDonald’s (MCD) report Wednesday of Q4 profits also beat expectations with 103 percent growth in earnings for the fourth quarter brought on by lower operating expenses and taxes for the fast food giant.
Apple Inc. (AAPL) shares were a major driver of the Dow rally Wednesday, rising nearly 7% on news of better than expected fourth quarter earnings as Apple guides toward a solid March quarter, typically its weakest of the four.
1. Federal Reserve Holds Rates Steady
But the really big force behind the strong updraft in prices for the Dow Jones Industrial Average, as well U.S. equities overall Wednesday, was the rosy outlook of the Federal Reserve Open Market Committee in its meeting today and its announcement that interest rates will remain relatively stable.
Markets fearful of a more bullish Federal Reserve monetary regime (like UBS CEO Sergio Ermotti, who told Davos-goers last week that liquidity can “freeze like the water in Davos”) are relieved to see a slightly dovish turn to the spigot knobs of monetary liquidity, along with a pleasantly rosy outlook.
Or as Patti Domm puts it for CNBC:
The Fed and Jerome Powell give the financial markets just about everything they wanted.
The Fed dropped talk of rate hikes from its language Wednesday in favor of an ample balance sheet and “patient” approach.
That’s even better than strong earnings from Boeing and Apple last quarter. Those earnings are in the past already, and today’s rally profited investors who bought Boeing and Apple in December, not those who bought it today. And there’s no way even Apple could trade world-class computers and phones for cash faster than a Fed accountant could type some more zeros into the bank’s balance sheet.
That’s where the big money is, and it sounds like more of it is heading the US stock market’s way this year.
Featured Image from Shutterstock. Price Charts from TradingView.