Dow pares gains in final hour of trade, after Powell says Congress may need to spend more to bolster economy

Stocks rebound as markets swing on coronavirus fears
June 16, 2020
Wall Street jumps on glimmers of economic recovery
June 16, 2020

Dow pares gains in final hour of trade, after Powell says Congress may need to spend more to bolster economy

Wall Street parses Fed Chairman Jerome Powell’s testimony

U.S. stocks are higher, but paring gains in the final hour of trade, in the wake of testimony to Congress by Federal Reserve Chairman Jerome Powell who suggested more fiscal stimulus may be needed before the American economy can make a full recovery from the COVID-19 pandemic.

Rising coronavirus cases in several U.S. states also are concerning investors, even though retail sales and industrial production data show the economy is slowly recovering and there are reports of progress in the development of potential therapeutic drugs.

How are benchmarks faring?

The Dow Jones Industrial Average DJIA, 1.75% rose 466 points, or 1.8%, at about 26,228. The S&P 500 index SPX, 1.61% was up 50 points at 3,117, a gain of 1.6%; while the Nasdaq Composite Index COMP, 1.53% advanced 133 points, or 1.4%, at around 9,986.

All three benchmarks still are off their best levels of the session.

On Monday, the Dow closed 157.62 points higher, or 0.6%, at 25,763.16, after falling by as many as 762 points or 3% at its Monday low, The S&P 500added 25.28 points, or 0.8%, finishing at 3,066.59, after hitting an intraday low at 2,965.66, or down 2.5%. The Nasdaq advanced 137.21 points. or 1.4%, ending at 9,726.02.

Both the S&P 500 and the Dow mounted their sharpest reversal to finish in positive territory since March 19, according to Dow Jones Market Data.

What’s driving the market?

Stocks were higher Tuesday afternoon after Fed Chair Powell said that Congress likely will need to spend more money to ensure the U.S. can reach a full economic recovery, while Bloomberg reported earlier that the Trump administration was planning a $1 trillion infrastructure spending package.

Powell reiterated that the road to recovery from the pandemic would likely be a long one and cautioned investors that they shouldn’t overreact to surprisingly good economic data like the May retail sales report published earlier Tuesday because “the levels of output and employment remain far below their pre-pandemic levels.”

U.S. retail sales jumped by 17.7% in May, the government said Tuesday. Economists polled by MarketWatch had forecast an 8.5% increase.

“While this has bolstered arguments in favor of a V-shaped recovery, we caution that the U.S. economy is only in the initial recovery phase – one in which strong growth figures from depressed levels of activity give the false impression of an immediate return to pre-Covid economic dynamism,” wrote an Oxford Economics team led by Gregory Daco, chief U.S. economist, in a note Tuesday.

Stocks earlier briefly retreated after the Fed chief said, “I don’t see us wanting to run through the bond market like an elephant,” in reference to the central bank’s announcement on Monday that it is expanding the scope of its $750 billion emergency corporate debt loan facility to include individual corporate bonds, which will be purchased in an index fashion.

Peter Cardillo, chief market economist at Spartan Capital, said, “He’s basically being cautious,” of Powell’s testimony. “The big thing is unemployment. He’s saying that jobs will come back, but it’s going to take a long time. And some people may not be able to get back to work, because some of those service-sector entities have been lost, and probably are lost forever,” he told MarketWatch.

Markets remain nervous though about signs of rising coronavirus cases in the U.S. and analysts at ING in a Tuesday report emphasized that worries of a second wave are one of the biggest concerns for investors. “The recent spike in new cases in several states suggests we need to make much more progress here, with the threat that renewed lockdowns could have a massive impact on confidence, risk assets and of course economic activity,” ING researchers wrote.

Also on Tuesday Beijing ordered all schools to shutter in an effort to contain a new coronavirus outbreak, which already had spread to neighboring provinces, and said all people will need to be tested for the virus before they are allowed to leave the city, according to a Bloomberg News report.

Stocks on Tuesday got a boost though after a report from the BBC said that dexamethasone, a cheap and widely available steroid, is showing signs of success in low doses when prescribed to patients who are suffering serious symptoms from the illness derived from the coronavirus.

The BBC report cited a study from Oxford University, which included 2,000 hospital patients who were given the steroid and were compared with more than 4,000 who didn’t get the drug. The report indicated that for “patients on ventilators it cut death risk from 40% to 28%,” and for “patients needing oxygen it cut death risk from 25% to 20%.”

In other U.S. economic news, a reading on U.S. industrial production for May rose by 1.4%, as many factories resumed operations after shutdowns spurred by the coronavirus crisis, the Federal Reserve said Tuesday. Capacity utilization came in at 64.8%.

Meanwhile, the National Association of Home Builders’ monthly confidence index rose 21 points to a reading of 58 in June, the trade group said Monday. It’s a marked rebound from April, when the index fell to its lowest level since June 2012.

In addition to Powell, the Fed’s No. 2 to Chairman Richard Clarida will speak later Tuesday.

Which stocks are in focus?
  • European Union antitrust authorities launched two probes into whether Apple IncAAPL, 2.20% violated competition laws through its Apple Pay service and its App Store for software that runs on its mobile devices. Shares of the iPhone maker were up 2.5%.
  • Shares of iQIYI Inc. IQ, 22.90% rocketed 24% in very active trading Tuesday, after Reuters reported that Tencent Holdings Ltd. TCEHY, 2.22% was looking to become the largest shareholder in the China-based provider of video streaming services.
  • Caesars Entertainment CorpCZR, 2.78% disclosed Tuesday that revenue for the reopened regional properties, for the period they were operating in May and/or June through June 10 were flat to up 2% from a year ago. Shares were up 2.6%.
  • WW International Inc. shares WW, 18.31% jumped 18.5% after the Weight Watchers parent company said digital subscriptions boosted numbers from a year ago because of the COVID-19 pandemic.
  • The SPDR S&P Retail ETF XRT, 2.61% rose, while the Van Eck Vectors Retail ETRTH, +2.51% was up sharply, led be retailers Macy;s Inc. M, 5.63%Nordstrom JWN, 12.83% and Kohl’s Corp. KSS, 8.63% after the better-than-expected retail report.
  • Shares of Urban One IncUONE, 442.66% more than doubled Tuesday, and has now skyrocketed 8-fold in three days.
  • Shares of Nvidia CorpNVDA, -1.92% and Intel INTC, -0.17% were in focus after Morgan Stanley analyst Joseph Moore downgraded the chip makers to equal weight from overweight Tuesday.
  • Charlotte’s Web Holdings IncCWBHF, -14.05% launched a C$67.5 million ($49.9 million) offering of shares through syndication on Tuesday, joining the many companies to issue new equity during the coronavirus pandemic.
  • Cisco Systems IncCSCO, 2.05% shares rose 2.7%, after the stock was upgraded to buy from neutral at BofA Securities, which also raised its stock price target to $67 from $55.
  • Schlumberger LtdSLB, 0.88% shares gained 1.5% Tuesday after it pointed to plans to initiate “major changes” to its organizational structure, aimed at permanently removing over $1.5 billion in costs on an annual basis.
  • Snap IncSNAP, 0.65% shares were up 0.4% after an analyst at UBS Global Research on Tuesday said shares are going to rise nearly 20% more, after touching a three-year high earlier this month.
  • Pacific Gas & Electric PCG, -0.36% pleaded guilty Tuesday to killing 84 people in a 2018 wildfire in Northern California, agreeing to pay a maximum fine of $3.5 million, as well as the cost of the investigation. The steps were taken as the company readies to emerge from bankruptcy, with more debt than it started the process with. The company also looked to raise about $8.9 billion in the corporate bond market Tuesday, as part of its restructuring. Shares were up 0.8%.
How are other assets faring?

West Texas Intermediate U.S. crude CLN20, 2.75% closed higher, adding $1.26 cents, or 3.4%, to settle at $38.38 a barrel on the New York Mercantile Exchange.

The greenback traded up 0.3%, as gauged by the ICE U.S. Dollar index DXY, 0.31%.

Check out: ‘The dollar is going to fall very, very sharply,’ warns prominent Yale economist

Precious metals booked gains, with August gold GCM20, +0.40% on Comex adding $9.30, or 0.5%, settling at $1,736.50 an ounce.

The 10-year Treasury note yield TMUBMUSD10Y, 0.747% rose 5 basis points to 0.75%. Bond prices move in the opposite direction of yields.

In global equities, the Stoxx Europe 600 index SXXP, +2.90% closed 2.9% higher, while the FTSE 100 index UKX, +2.93% gained 2.9%.

In Asia markets, China’s benchmark CSI 300 index 000300, +1.50% closed 1.5% higher on Tuesday, while the Shanghai Composite Index SHCOMP, +1.44% picked up 1.4%, and the Japanese Nikkei NIK, +4.88% surged 4.9%. Hong Kong’s Hang Seng HSI, +2.38% climbed 2.4% and South Korea’s Kospi rose rallied 5.3%.