Market Insights 3/4/2020

Stock markets posted big gains today after falling sharply yesterday when Fed surprised the markets with an emergency 50 basis point rate cut.

Today offered a more favorable reaction with the major indexes all rising close to 4%. The Treasury curve steepened as markets turn their attention to the prospect of further cuts from the Fed’s March meeting.

The markets also digested implications of Super Tuesday results that bolstered Democratic candidate Joe Biden’s presidential campaign. The results compelled former New York mayor Michael Bloomberg to bow out of the race and offer his endorsement to Vice President Biden.

Gold was little changed and crude oil prices were lower. Europe and Asian equities traded to the upside.

The Markets…

The Dow Jones Industrial Average was up 1173 points (4.5%) to 27,091

The S&P 500 added 127 points (4.2%) to 3,130

The NASDAQ added 334 points (3.8%) to 9,018

1.2 billion shares were traded on the NYSE and 3.6 billion shares changed hands on the NASDAQ

WTI oil dropped $0.40 to $46.78 per barrel and wholesale gasoline rose $0.02 to $1.56 per gallon

The Bloomberg gold spot price shed $1.40 to $1,643.00 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—added 0.2% to 97.36

ISM services sector report hits one-year high, ADP’s employment report tops forecasts

The February Institute for Supply Management (ISM) non-Manufacturing Index rose to 57.3 from January’s 55.5, and versus the Bloomberg forecast of a dip to 54.8, with a reading above 50 denoting expansion. The index hit the highest level in one year, as new orders jumped to 63.1 from January’s 56.2 level, employment improved to 55.6 from 53.1, and order backlogs moved back into expansion territory. The ISM said most respondents are concerned about the coronavirus and its supply chain impact and continue to have difficulty with labor resources. However, they do remain positive about business conditions and the overall economy.

Treasuries were mixed and the curve steepened, with the yield on the 2-year note dropping 4 bps to 0.66%, the yield on the 10-year note increasing 3 bps to 1.03% and the 30-year bond rate rising 6 bps to 1.68%. Bond yields have touched record lows recently as the coronavirus concerns have fostered a decisive flight to safety.

Markets continued to digest yesterday’s surprising 50 bp rate cut from the Fed due to the coronavirus posing “evolving risks to economic activity,” which came ahead of the Central Bank’s scheduled meeting later this month.

The ADP Employment Change Report showed private sector payrolls rose by 183,000 jobs in February, above forecasts of a 170,000 gain, while January’s increase of 291,000 jobs was revised to a 209,000 rise. Today’s ADP data, which does not include government hiring and firing, comes ahead of Friday’s broader February non-farm payroll report, expected to show jobs grew by 175,000 and private sector payrolls rose by 160,000.

Europe higher as virus focus remains but stimulus expectations aid the markets

Global equities rallied with the U.S. as increased expectations of further global central bank stimulus measures appeared to also aid the markets in the wake of yesterday’s surprising rate cut out of the U.S. and Australia’s move to reduce its benchmark interest rate to record lows.

The U.K. FTSE 100 Index was up 1.5%, France’s CAC-40 Index ascended 1.3%, Germany’s DAX Index gained 1.2%, Switzerland’s Swiss Market Index advanced 1.6%, Spain’s IBEX 35 Index rose 1.1%, and Italy’s FTSE MIB Index increased 0.9%.

Japan’s Nikkei 225 Index ticked 0.1% higher. South Korea’s Kospi Index rallied 2.2%. China’s Shanghai Composite Index gained 0.6%, though the Hong Kong Hang Seng Index declined 0.2%. Australia’s S&P/ASX 200 Index fell 1.7%. India’s S&P BSE Sensex 30 Index traded 0.6% to the downside.