Dow Soars Above 34,000 Powered by Strong Economic Data

16 Apr 2021 · 3rd Party Analysis

WRITTEN BY ThorFX

In Summary

  • Rosy economic data suggests a powerful economic rebound
  • Dow Jones and S&P500 once more surge to record highs

The US stock market has been on a tear lately. The Dow Jones Industrial Average notched another record high on Thursday after strong earnings and powerful economic data boosted stocks across the board. The Dow has now cleared four one-thousand-point moves this year, rising more than 12% year-to-date. The blue-chip index rose 305.10 points, or 0.90%, to close at 34,035.99.

To empower the buy-everything rally, the S&P500 also pushed to an all-time high yesterday, closing higher by 45.76 points, or 1.11%. The record close for the broad-based benchmark index was its 22nd of the year. And the tech-heavy Nasdaq Composite index jumped 180.92, or 1.31%, to finish the session at 14,038.76, just around 50 points from its all-time peak.

The S&P500 is up over 12% this year and the Nasdaq Composite has advanced nearly 11%. All three major indexes have been marching higher on expectations for a strong economic recovery, underpinned by the rollout of Covid-19 vaccines and large amounts of government spending aimed to charge the economy and the markets.

Positivity Permeates the Market

The earnings season that kicked off earlier this week has largely contributed to the market rally. Several large US banks already reported record profits, highly exceeding forecasts. On Wednesday, Goldman Sachs, JPMorgan, and Wells Fargo announced blowout earnings reports for the first quarter. Joining them on Thursday, BlackRock, the asset management firm with over $9tn in assets, said its quarterly profits rose nearly 50%. Bank of America also reported on Thursday, but its shares dropped nearly 3% after the bank announced a jump in expenses.

Traders and investors cheered the largely positive reports by investment banks but they were even more encouraged by the latest economic data that suggested the economic recovery is accelerating. US retail sales, an indicator tracking purchases at stores, restaurants, and online, spiked 9.8% in March.

The strong rebound in economic activity was also supported by the latest unemployment claims. Jobless claims, a proxy for layoffs, declined to the lowest level since the onset of the Covid-19 pandemic more than a year ago. The figures showed 576,000 Americans applied for first-time unemployment benefits in the week ended April 10. Compared with the previous report of 769,000 people who applied in the week prior, the improvement served as a sign the US economy revs up as more Americans are active in the labor market.

The maximum level of employment is one of the main outcomes the Federal Reserve wants to see before it changes its current policies. An increasing level of employment is a factor that would determine when the central bank will raise interest rates and start unwinding its monetary support, which currently stands at $120bn a month.

Meanwhile, despite rosy economic data suggesting a quick rebound, Treasury yields, which fall when bond prices rise, marked their biggest decline since November. the 10-year US Treasury yield dropped to 1.531% on Thursday, from 1.637% the day prior. Lower yields indicate increased demand for government debt.

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