Green shoots: Wednesday was one of the most positive days for the stock market on many fronts
- Stocks bounced on the promise that a Gilead drug may help treat the coronavirus, as well as reassurance from the Federal Reserve that it will do whatever it takes to support the economy.
- Traders are betting on the "light at the end of the tunnel" and looking past dire economic reports.
- Other positives in the market Wednesday was a surge in tech, which erased losses for they year, and a six-day surge in small caps, a positive signal that the rally is broadening.
- The S&P 500 is up more than 13% for the month and is on track for the best month since October 1974.
Stocks are looking past the gloom of deeply recessionary economic news and finding hope in a reopening economy and the idea that drugs may ultimately be able to help fight the coronavirus.
The market bounded higher Wednesday on a combination of what look like 'green shoots,' the most hopeful of which were reports of Gilead's promise in treating patients with coronavirus. The National Institute of Health said Gilead's remdesivir had success in treating coronavirus.
The rally was broad. Tech surged and has wiped out its losses for the year after strong gains in both Alphabet and Facebook. The small-cap Russell 2000 jumped 4.8% in its sixth-straight day of a more than 1%, the first such streak since 2000. The S&P energy sector jumped 7.4%. Tech is now 10.3% below its all-time high, but health care, consumer staples and consumer discretionary stocks all closed within 10% of their all-time highs.
Another dose of medicine for investors came from the Federal Reserve, which committed again Wednesday to do whatever more it takes to help the economy and keep markets liquid. Stocks added to the rally when Fed Chairman Jerome Powell emphasized the central bank will not be in a hurry to withdraw the extraordinary policy actions it is taking until it's confident the economy is "well on the road to recovery."
"I think the market actually liked the news of remdesivir more than it cared about what Powell said," said Patrick Leary, chief market strategist at Incapital. Traders said even the bond market traded more on the positive headlines on Gilead's drug, than the worse-than-expected decline of 4.8% in the gross domestic product in the first quarter, which was reported about the same time Wednesday morning.
"The bullish thing the Fed did say ... is that they're going to keep rates on hold until they're confident the economy is back on track," said Leary. "What they mean is they believe the economy is going to get back on track — a bullish signal."
Michael Arone, chief investment strategist at State Street Global Advisors, said the market has moved even without details of all the Fed programs, and that's fine while the Fed fights the sharp economic decline.
"They have a deep-pocketed buyer that doesn't care about price, doesn't care about fundamentals, that's going to ensure there is liquid and smooth functioning of markets," he said.
States have begun to open their economies in the past week, and investors have been watching to see if the openings can continue and whether business activity is picking up,
"Public health is the new thing the Fed is watching. Now they're keeping an eye on it like everyone else on public health policy," Arone said. "Do we see a rebound in injections? Do states start to come back on line as the lock downs and stay-at-home orders come off? As we know from the market perspective, today part of the enthusiasm continues to be around is there a health solution to a health problem. Gilead 's remdesivir promising study is a big component of today's rally."
The Dow jumped 2.5% to 24,696, while the S&P ended 2.7% higher at 2,939. The Nasdaq, boosted by a big tech rally, was up the most, soaring 3.6%, as the tech sector turned positive for the year.
Alphabet surged nearly 9% following its earnings. Even though the company missed earnings forecasts, its revenue growth beat estimates and its slide in advertising revenue appeared to moderate. Facebook was up 6.2% and tagged on another 9.3% after hours.
Traders are watching to see if tech remains a positive story Thursday when Apple and Amazon report earnings after the closing bell. Also Thursday, jobless claims are expected in the morning and could be above 4 million, putting the number of workers who filed claims at 30 million in just six weeks.
"There's another way to think about it, and that would be the market knows the news is going to be bad economic data and the market knows it's going to get worse," said Art Hogan, chief market strategist at National Securities. "The market knows even good companies are going to report earnings and pull their guidance. The market is looking toward light at the end of the tunnel and what would that look like." Hogan said one big positive was the promising news on Gilead, but also that 70 other companies are working on vaccines or therapies.
He also said the Fed's unrelenting policy moves since late March have helped the stock market. The S&P is now up 13.7% for the month of April, on track for its best month since October, 1974. market was positive.
"I think you're going to have Jay Powell looking like Winston Churchill. He was the first out there and he's been the most vocal on policy support," Hogan said."His message delivery of how bad things are going to get and how much they're going to do to backstop that has been on point straight through. That's been one of the constants."
Scott Redler, partner with T3Live.com, said the news flow is getting more positive as the the virus cases look to have peaked. But the market was able to go higher even in a "vacuum of good news."
He said traders are ignoring negative headlines. "They're saying I don't care about that. All they care about is the reopening and how business is going to try to get back to normal, which is a wild card," he said. "Right now, bad news is good news and good news is great news, until that changes."