This past week has certainly been one for the history books! Not surprisingly, the financial media has been churning out so much information it’s hard to keep track. So, in today’s Market 360, we’re going to tap the brakes a bit and dig into the market’s action, day by day.
The stock market plummeted, with the Dow falling as much as 960 points. All told, the Dow and S&P 500 closed down 3% and 2.9%, respectively. These losses compounded the damage from previous weeks to wipe away all the gains the stock market had made since President Trump’s election.
Interestingly, these losses came despite the Federal Reserve announcing that it would not cap its quantitative easing program at $700 billion. Instead, it would purchase as many Treasuries and mortgage-backed securities “in the amounts needed” to help stabilize the U.S. economy. It will also now purchase agency commercial mortgage-backed securities.
Thanks to this unlimited quantitative easing, we shouldn’t have to worry about Treasury yields spiking while the stock market is falling. The Dow and S&P 500 also continue to yield significantly more than Treasuries, and dividend stocks had actually started to recover last week.
The bad news is there aren’t any humans on the stock market exchange. Electronic trading is all about supply and demand, which is why we saw so much volatility on Monday. Some companies, like Darden Restaurants, Inc. (DRI) are also cutting their dividends.
All that said, as I mentioned in Monday’s Market 360, I did see some strength under the surface. For example, I saw some Chinese and Taiwanese companies flash buy signals.
The stock market roared out of the gate Tuesday morning. The Dow jumped 1,200 points, or 6.2%, at the opening bell. The S&P 500 jumped 5%. The Dow also hit a new record, gaining 2,113 points, or 11.4%, by the close – the biggest percentage increase since 1933. Both hotel and airline stocks soared, though blue-chip stocks dropped a little off their highs.
There were a couple of catalysts behind the jump. First, China announced that it would lift the massive quarantine and transportation lockdown on the city of Wuhan on April 8. Wuhan is the epicenter of the outbreak. President Xi also noted the outbreak is finally being curbed in China.
Second, the folks on Capitol Hill moved closer to an agreement on a bailout bill. Wall Street cheered the news that U.S. senators were working on a $2 trillion stimulus bill to help the U.S. economy recover from the coronavirus outbreak and subsequent economic fallout.
Third, President Trump was extremely upbeat in his news conference. It’s obvious he wants to re-open the U.S. economy and feels that we’re doing more harm than good with all the lockdowns across the nation.
And, finally, Gilead Sciences (GILD) has an experimental treatment for the coronavirus, remdesivir. It is one o the most promising treatments for the disease. Remdesivir is currently in clinical trials, and the FDA gave it the orphan drug designation on Monday. Early results from the clinical trials are expected in April.
Here’s the catch, though: The rally was also driven by short covering. In fact, the bottom 10% of the S&P 500 stocks popped 20.8%. However, on the flip side, stocks with high dividends and low P/E ratios jumped 21.4%. So, it’s clear that dividend stocks were leading the way higher.
Stocks continued to rally. Boeing’s (BA) 32% jump helped support the Dow’s 2.7% climb by mid-day. Big-box stores still saw a major increase in sales, due to Americans stocking up on pantry essentials. By the closing bell, the Dow and S&P 500 were up 2.4% and 1.2%, respectively. This also marked the first day the S&P closed higher for two days in a row since February.
Growth stocks were starting to recover, thanks in part to the quarter-end window dressing season. We’re in a “V-shaped” recovery right now, but it’s a little more narrow. In this case, the rally was again led by dividend stocks.
The strength on Thursday marked the third day of the broader stock market closing in the green. The Dow finished up 6.4%, or 1,352 points, while the S&P rose 6.2%. The rally almost pulled the stock market out of the bear market.
This surge came despite the record 3.28 million jobless claims. Clearly, Wall Street was primarily focused on the Senate passing the $2 trillion stimulus package.
The good news is that we’re still in a dividend rally. But there’s some bad news, too. On Tuesday and Wednesday, the worst-performing stocks this year bounced 11.19% and the strongest-performing stocks bounced just 0.25%. So, investors were buying “trash” stocks. The rising tide is lifting all boats, including the “crap,” for lack of a better word. And “crap stocks” don’t float forever.
The stock market gave up some of its gains following the stunning three-day rally. The Dow fell more than 1,000 points, though it did bounce back a bit into the close. Even with Monday’s and Friday’s pullback, the Dow and S&P still ended the week up 13.4% and 10.1%, respectively.
However, I wasn’t too concerned about Friday’s selloff, as I noted in yesterday’s Market360. The truth of the matter is a lot of the market’s strength this week was due to short covering. But that’s not necessarily a bad thing. Bear markets tend to end with short covering rallies.
You may know that oil prices are very low; they nearly broke $20 a barrel on Friday. The reason is, when they passed the $2 trillion stimulus package, they did not put in the relief for the Strategic Petroleum Reserve. So, the oil industry has had a bit of a relapse.
Saudi Arabia has not been able to sell oil at discount prices to some of the countries they wanted to, so they’re getting very frustrated. In the United States, we’re also about to run out of storage in the next three to four months. And it’s kind of hard to pump oil if there’s nowhere to put it.
The big risk to the economy is deflation, falling asset prices. That’s a central banker’s worst nightmare, so it’s absolutely crucial to restart the economy sooner or later. A lot of these decisions are going to be up to the state governors.
The Bottom Line
The reality is that we remain in a bear market, so we’re not out of the woods just yet. However, dividend stocks are leading the way higher. So, if you’re a dividend investor, it’s safe to dip your toes back into the stock market. My Platinum Growth Club is invested with the best of the best dividend stocks – I like to call these my Elite Dividend Payers.
Note: I’ll be fine-tuning my Platinum Growth Club Model Portfolio accordingly. So, if you try us out now, you’ll get this hand-picked list, plus my VIP chats. (I’ve also been recording podcasts constantly in this crazy market for subscribers to Platinum Growth Club and ALL my services.)
Speaking of fine-tuning my Model Portfolio, I’m seeing fresh opportunities in Asian stocks. So, next Wednesday, I will be recommending three new companies that are flashing the “buy” signal right now.