This week turned out to be a remarkable rebound for the stock market. On Wednesday the Dow Jones Industrial Average was up over 1,100 points at the high! This rally came after the index had gained over 1,000 points, marking the end of a four-day losing streak for the index, at least so far. This increase is being fueled at least in part by a change in perception regarding the Federal Reserve. This move comes on the heels of related comments by former President Donald Trump.
Trump just took impeachment bait off the table by stating that he will not fire Federal Reserve Chair Jerome Powell. This follows his earlier comments that Powell’s “termination should happen sooner.” This sudden 180 made for a much sunnier mood amongst investors, removing the worries clouding the central bank’s leadership.
And yet, by midday on Wednesday, the market’s momentum was beginning to run out of gas. At the time, the Dow was still up only 500 points from those previous highs. John Flood, a managing director at Goldman Sachs, noted that “squeeze risk is real today,” highlighting the current market dynamics characterized by short-covering activities observed on both Tuesday and Wednesday.
Investors cheered signs of an easing of hostilities on the trade front, even if no firm agreements have been reached. The broad S&P 500 price index showed its own strength, up 3.5% week to day and logging consecutive winning sessions.
Despite the market’s remarkable gains, analysts cautioned that the rally appears to be happening without a lot of real-world news to justify it. Scott Bessent remarked, “[there is an opportunity for a big deal here],” suggesting that while optimism is high, concrete developments remain elusive.
As the trading day progresses, market observers will be keenly watching how these dynamics unfold and whether the current rally can maintain its momentum amidst ongoing uncertainties in trade negotiations and monetary policy.
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