Amid hopes the White House and Congress will deliver stimulus to the economy and targeted measures to industries weakened by the novel coronavirus outbreak, stocks rallied Tuesday, but it remains to be seen if this is a credible rebound or one-off event in the greater scheme of a bear market.
- The S&P 500 climbed 4.94%
- The Dow Jones Industrial Average advanced 4.89%
- The Nasdaq Composite soared 4.95%
- After being one of the Dow’s worst-performing names over the past week, JPMorgan (NYSE:JPM) led the index higher today, jumping 8.12%.
Igniting Tuesday’s rally, President Trump told Republican senators earlier today he wants a payroll tax holiday through the November election. Reminding investors and those affected by the coronavirus that politics are always at play, Senate Democrats appear to be leaning toward a package that includes paid sick leave and extended unemployment benefits.
The president also said there will be targeted help for the airline and cruise line industries, the latter of which drew some criticism from some market observers because cruise operators are not essential to the U.S. economy the way airlines are.
Criticism aside, 26 out of 30 Dow stocks were higher in late trading, good for the best ratio in some time.
Be Careful With Oil
While Tuesday’s rally in equities could be the start of something more substantial, it’s hard to envision that being the case with oil. Yes, crude spiked today, but this appears to be more dead cat bounce than end of a bear market. After all, it’s hard to get excited about a commodity when demand for it is waning and supply is increasing.
Specific to Dow components, Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX), yes, those stocks were among the index’s winner’s today, but the concerns about those companies’ dividends aren’t going away.
If anything, those worries are being amplified after rival Occidental Petroleum (NYSE:OXY) said earlier today said it’s cutting its dividend for the first time in 30 years. No, this isn’t a modest reduction: it’s an 86% slash that could portend more dividend reductions from the energy sector.
Politics Part II
It’s not Super Tuesday, but several states, including delegate-rich Michigan, are holding presidential primaries today. With that, UnitedHealth Group (NYSE:UNH) was among the Dow winners today.
The managed care provider hasn’t been perfect, but this month, it is performing less poorly than the S&P 500. That steadiness coupled with its pop today could be seen as UNH stock telling the market that the Sen. Bernie Sanders campaign is on life support. Should former Vice President Joe Biden bolster his delegate tally in significant fashion tonight, UNH could be in for another solid day on Wednesday.
More Bad News
For those tired of hearing bad news about Boeing (NYSE:BA), you wouldn’t be blamed for that sentiment. But on a good day for the broader market, the stock continued sliding, touching its lowest levels since 2017.
Even when ignoring the 737 Max issue, which is frankly impossible, Boeing is confounded on other fronts. For example, the COVID-19 epidemic is crimping air travel while low oil prices mean carriers can use older planes for longer periods of time, allowing them to stave off costly upgrades. Neither of those scenarios is constructive for upside in BA stock.
Consumer-oriented Dow stocks, namely Disney (NYSE:DIS), Home Depot (NYSE:HD) and McDonald’s (NYSE:MCD), soared today, but the consumer, the backbone of the economy and to many, the bull market in stocks, remains in an interesting spot.
There’s no denying the COVID-19 is crimping discretionary spending, but some are making that argument that between declining oil prices and lower mortgage rates, that’s $725 billion (yes, billion with a “B”) in savings for consumers.
Bottom Line on the Dow Jones Today
I don’t want to sound an ominous tone, but Tuesday’s upside, while pleasant, doesn’t mean markets are out of the coronavirus woods just yet.
Consider the following, which is relevant because there are still three weeks left in the first quarter: to this point in 2020, nearly 1,800 earnings calls have taken place and the coronavirus has been mentioned more than 11,300 times.
As of this writing, Todd Shriber did not own any of the aforementioned securities. He has been an InvestorPlace contributor since 2014.