Setting a new record after losing 653 points on shortened trading day Christmas Eve, Dec. 24, the Dow Jones Industrial Average set a new record for a one day rally, jumping 1,086 points or 4.98%. Following suit, the tech-rich Nasdaq Composite surged 361.44 points or 5.84% and S&P 400 jumped 4.96% or 116.6 points, after dropping into bear market territory Christmas Eve. Market analysts said Wall Street was over-sold with stocks poised for a rebound. Yet investors are still gun shy after watching all market averages lapse into bear market territory, losing 75% of gains since President Donald Trump was sworn in Jan. 20, 2017. Investors now question whether today’s meteoric rise could be the beginning of another sell-off, mirroring Wall Street’s uncertainty with trade wars, rising interest rates or whether the federal government partial shutdown will end anytime soon.
Goldman Sachs senior market analyst Abby Joseph Cohen noted Dec. 23 that markets looked oversold, a good time for major funds to take positions again. One day after Christmas, Joseph-Cohen’s prediction came true with all market averages rising about 5%. Saying she saw no change in market fundamentals, it was a no brainer for Joseph Cohen to predict that market averages would rebound. While markets have a long way to go to recover losses after hitting a record peak in the Dow Sept. 20 or Sept. 28 in the Nasdaq Composite, time will tell whether today’s historic buy-back will continue. Last week’s bad news easily morphs daily on Wall Street to something to justify both buying and selling frenzies. Today’s headlines haven’t yet caught up with Wall Street’s historic rise, not sure how to spin today’s buying frenzy. Amazon.com reported today its biggest Christmas ever, rising 5% from 2017.
With online retailers finishing strongly, investors are also looking optimistically at what’s been very negative news weighing in on markets. Mastercard and VISA reported that sales were up from 2017 over 5%, another positive sign for the retail sector but also for 4th Quarter Gross Domestic Product [GDP]. With over two-thirds of the U.S. economy driven by consumer spending, Amazon online business signals strong retail sales. Value investors at large private equity, hedge and mutual funds saw real value in taking positions today, boosting all market averages. Logistic and fulfillment companies like United Parcel Service [UPS], FedEx and United States Postal Services [USPS] all saw delivery business rise over 5%. Whether positive sales in brick-and-mortar stores like Wall-Mart, Costco, Target, Marshals, etc., is enough to keep the rally going is anyone’s guess.
After today’s euphoric rise in the Dow, Nasdaq and S&P, investors will ask themselves whether or not the so-called “dead cat bounce” morphs into long-term buying conviction by major investment funds. If there’s any worry about the prolonged government shutdown, Fed’s rising rates or a global slowdown, investors will once again dump shares. Major tech companies like Amazon [AMZN[, Microsoft [MSFT], Apple [APPL], Google [GOOG], Facebook [FB] or Netflix [NFLX], increased today in market capitalization by $242 billion, adding to investors’ confidence. Markets had dropped in the seven days before Christmas Eve by 8.83%, showing how bad things had gone. Today’s rally gives investors hope that Goldman Sachs’ Abby Joseph Cohen might be right that the market’s oversold, giving value investors a real opportunity to take new stock positions
Chaos in Washington with the government shutdown doesn’t give long-term investors much certainty even after today’s nearly 5% gain in market averages. When elected officials return to Capitol Hill tomorrow, you’d hope that Democrats and Republicans could get on the same page to reopen the government. So far, House Speaker Nancy Pelosi (D-Calif.) and Senate Minority Leader Chuck Schumer (D-N.Y.) have showed no interest in bargaining on border wall funding with President Donald Trump. If Pelosi and Schumer want markets to continue rising, they need to urgently cut a deal with the White House, something that amounts to giving Trump about $2 billion for his border wall. Instead of playing politics, Pelosi and Schumer should compromise with the president for the good of the country. If there’s no end in sight to the shutdown, it’s doubtful the rally will last.
Jumping nearly 5%, all major stock indexes show they’re poised for more gains but only after elected officials can show a willingness to end the shutdown and get back to work on pressing legislative necessities like immigration reform. Signing Criminal Justice Reform Dec. 23, Democrats and Republicans showed they could get on the same page when they want to. Keeping the government shutdown over a measly $2 billion is bound to backfire on Democrats, refusing to negotiate on Trump’s border wall funding. With the Federal Reserve Board tinkering with monetary policy, elected officials need to do their part to grow the economy. More bickering on Capitol Hill leaves investors gun shy to make long-term investments. Today’s rally shows there’s still belief with investors that the U.S. economy continues to grow, producing the kinds of corporate earnings to justify buying stocks.
