Dow rallies 700 points, retakes 23,000 as market rebound continues
Stocks surged on Wednesday after Sen. Bernie Sanders dropped out of the presidential race, relieving some of Wall Street's political concerns amid the economic crisis stemming from the coronavirus.
The Dow Jones Industrial Average gained 779.71 points, or 3.4%, to close at 23,433.57. The S&P 500 climbed 3.4% to 2,749.98 while the Nasdaq Composite advanced 2.6% to 8,090.90. Hope the U.S. could start to turn a corner on the coronavirus outbreak in the near future also lifted equities.
Some of Sanders' policy proposals, including Medicare for All, raised concern among several business owners and investors who feared taxes would go up under his presidency. Wednesday's news puts former Vice President Joe Biden — who is seen by Wall Street as a more market-friendly candidate — closer to the Democratic nomination.
"Sanders' exit removes the tail risk of some of his policies, immediately sets up focus on Biden vs. Trump," said Ed Mills, Washington policy strategist at Raymond James. "Biden's policies will get a new scrutiny now he is the presumptive nominee, but the truth of the matter is that the market will be looking towards Washington more to help the economy and much of the assistance matches his platform."
Coronavirus turnaround possibly ahead
In the U.S., the number of daily increases in coronavirus cases has fallen since Friday, according to data from Johns Hopkins University. Daily increases in global cases have also fallen since then.
Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, told Fox News on Wednesday that the U.S. death count related to the coronavirus is now lower than initially thought, noting there should be a turnaround after this week. He added, however, virus efforts should be intensified.
"If the curve is bending, for the first time, some time-line is coming into focus for restarting at least parts of the economy," said Jim Paulsen, chief investment strategist at the Leuthold Group. "This means investors can start to reduce their best guesses as to how long this recession will last and even if the recession is very deep, if its duration can be shortened and known with some greater clarity, this would tend to raise the value of the stock market."
Stocks pressured by the coronavirus outbreak led the way higher. Carnival, Norwegian Cruise Line and Royal Caribbean all advanced at least 6.1%. MGM Resorts gained 10.1% while Wynn Resorts climbed 13.5%. United led airline stocks higher with a 12.4% jump. American and Delta closed higher by 10.9% and 4.4%, respectively.
Crude prices also jumped, giving equities another lift. West Texas Intermediate futures rose 6.2% to settle at $25.09 per barrel. Energy was among the best-performing sectors in the S&P 500, jumping more than 6%. Health care rallied more than 4%.
"The market is obsessively focused on the issue at hand; not just the number of new cases, which seems to be slowing down, but also increasing signs of getting back to normal in economic activity," said Jeffrey Keintop, chief global investment strategist at Charles Schwab. He noted that data out of China has improved while some countries have hinted at the possibility of reopening their economies soon.
"The idea that this economic freefall is actually close to finding a bottom, I think, is the bigger driver for optimism in the markets," Kleintop added.
However, some investors believe equities were getting ahead of reality where coronavirus shutdowns are likely to weigh on the economy significantly beyond the second quarter. After Wednesday's rally, the Dow is up 29% from its low and the Nasdaq Composite is down less than 10% this year.
The uncertainty around the coronavirus has also pressured corporate earnings estimates. Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, thinks they could fall even more.
"We are still in the early innings of downward EPS revisions," Calvasina wrote in a note to clients. "Further downward revisions could keep equity market conditions choppy for the time being."
On Tuesday, the Dow Jones Industrial Average fell 26 points or 0.1%, giving up a 900-point surge from earlier in the day.
The Federal Open Market Committee released the meeting minutes from its March emergency meeting. The summary showed "all participants viewed the near-term U.S. economic outlook as having deteriorated sharply in recent weeks and as having become profoundly uncertain."
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