S&P 500

US Stock Market Supported by Aggressive Fed Monetary Moves, Government Fiscal Aid Package

U.S. stock market indexes rebounded on Friday after the Dow Jones Industrial Average suffered its worst loss since 1987, surging 1,985 points or more than 9%, as the S&P 500 and NASDAQ each made similar gains.

The markets spiked at the opening bell as rumor spread of potential Federal Reserve intervention. Many traders thought the Fed was going to buy stock index futures. Others were looking for the announcement of massive stimulus from the U.S. Federal government. Prices dipped near the mid-session as investors waited for the good news to back their earlier buys, but rebounded into the close after the anticipated news was delivered.

In the cash market on Friday, the benchmark S&P 500 Index settled at 2711.02, up 230.38 or +7.80%.  The blue chip Dow Jones Industrial Average finished at 23185.62, up 1985.62 or +7.81% and the technology-based NASDAQ Composite closed at 7874.88, up 673.08 or +7.86%.

Investors Consistent

The price action late last week indicates that investors have learned that volatility works both ways. Additionally, they’ve been pretty consistent in their ways, selling when there has been a lack of clarity over what healthcare and government officials have been doing, and buying when officials have presented a clear plan of action. We saw times last week when the selling seemed overly aggressive in response to a government’s strategy to fight coronavirus that seemed inadequate, and strong buying when officials outlined a more aggressive response.

This type of trading is likely to continue over the near-term and probably until the number of new coronavirus cases in the U.S. and globally subside. In the meantime, in addition to a better understanding of the plan of action, there was also a positive response to monetary and fiscal stimulus.

Investors Respond Positively to Monetary Stimulus

Helping equity prices rise on Friday was the decision by the U.S. Federal Reserve to start buying Treasurys across all durations, starting with 30-year bonds. “These purchases are intended to address highly unusual disruptions in the market for Treasury securities associated with the coronavirus outbreak,” the New York Fed said in a statement.

House Passes Coronavirus Aid Package, Sending Bill to Senate

On the fiscal side of the equation, the U.S. House of Representative passed a coronavirus aid package in a bipartisan vote early Saturday, after Democrats and the Trump administration reached a deal that includes free testing, paid emergency leave and other resources intended to help stem the crisis and stabilize financial markets. This news was priced into the markets on Friday.

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James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.