The Dow Jones Industrial Average scored its biggest one-day percentage gain in nearly 11 years on Monday, as stocks bounced back sharply from the previous week’s selloff, with the rebound fueled by expectations that policy makers will move to cushion the impact of the COVID-19 outbreak on the global economy.
How did major benchmarks fare?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.44% rose 1,293.96 points, or 5.1%, to end at 26,703.32 — its largest one-day percentage rise since March 23, 2009. The S&P 500 /zigman2/quotes/210599714/realtime SPX +1.05% rebounded 136.01 points, or 4.6%, to end at 3,090.23., while the Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +0.66% advanced 384.80 points, or 4.5%, to finish at 8,952.16 — marking the biggest one-day percentage gain for both indexes since Dec. 26, 2018. Monday’s point gains were the largest on record for all three major indexes.
Last week, the Dow fell 12.4%, the S&P 500 lost 11.5% and the Nasdaq shed 10.5%, representing their worst weekly skids since 2008. Last week’s decline saw all three equity indexes fall into correction territory, widely defined as a drop of at least 10%, but less than 20%, from a recent peak, as fears of the spreading coronavirus outbreak rattled investors.
What’s driving the market?
Stocks shook off disappointing U.S. and global economic data, including a weaker-than-expected reading in the Institute for Supply Management’s manufacturing index and a record-low reading in a China purchasing managers index. Equities instead “closed up strongly on the hope that fiscal and monetary stimulus is on the way,” said Kathy Lien, managing director of FX strategy at BK Asset Management, in a note.
Expectations the Federal Reserve and other central banks will move to ease policy were credited with helping to fuel a rebound in global equities, though analysts cautioned that conditions were likely to remain volatile.
“Peoples’ first instincts are to ask for the Fed to help. They will probably act. But what I’m looking for is more central bank coordination. If we see that, you might get more of a bounce” in stocks, said Joe Saluzzi, co-head of equity trading at Themis Trading, in a phone interview.
The magnitude of the outbreak and its effect on the economy and supply chains remain the biggest questions for investors.
“More so than the health effects, investors are watching for how long the supply chain and corporate earnings will be affected. Will it just be one quarter or even two quarters? You don’t know, and that causes uncertainty,” Saluzzi said.
The Paris-based Organization for Economic Cooperation and Development on Monday forecast that the global economy would grow by 2.4% in its “best case scenario,” compared with 2.9% expansion projected before the viral outbreak. The OECD urged governments to act “swiftly and forcefully” to boost the world economy. Finance ministers from the Group of Seven economies were scheduled to hold a call Tuesday to discuss potential responses to the virus, according to news reports.
“It’s both the prospect of fiscal and monetary easing driving markets higher. There is willingness on the part of the Fed and other central banks in the world to lower rates. On the fiscal side, that’s up to governments, but that can be done as well,” Randy Frederick, vice president of trading and derivatives for the Schwab Center for Financial Research, told MarketWatch.