Stocks Have Best Week Since 1938 After Trump Signs $2 Trillion Coronavirus Stimulus Bill

Topline: The stock market closed lower on Friday, cutting into some of its gains from the previous three days in yet another volatile week of trading—but Wall Street also cheered the news that Congress had passed the largest stimulus bill in American history to stem the economic fallout from coronavirus.

  • The Dow Jones industrial average dropped 4.1%, over 900 points, on Friday, while the S&P 500 fell 3.4% and the Nasdaq Composite lost 3.8%.
  • Stocks moved well off their lows in the final hour of trading, amid news that the House passed the $2 trillion coronavirus stimulus bill, which President Trump will reportedly sign later today.
  • The largest economic relief package in American history, the bill has been under negotiation since last week, twice failing to make it out of the Senate before it was eventually green lighted on Wednesday in a unanimous 96-0 vote.
  • “What a difference a week makes,” says Lindsey Bell, chief investment strategist for Ally Invest. “The conversation on Wall Street shifted dramatically, as investors went from asking themselves if the bottom would ever be reached, to thinking about how quickly the world could return to normal after coronavirus passes.”
  • Billionaire investor Leon Cooperman told CNBC on Friday that he believes the market has finally reached a bottom, after weeks of economic turmoil caused by the coronavirus outbreak, and that he’s now buying stocks again.
  • Despite the market losses on Friday, the Dow and S&P 500 are still up 12.8% and 10.3% for the week—their best weekly gains since 1938 and 2009, respectively.

Key background: Prior to Friday’s session, stocks had gained 24% in their biggest three-day rally since 1931. On Tuesday, stocks had their best single-day gains since 1931, surging 11% higher as the Senate moved closer to passing the $2 trillion coronavirus relief package. Both major indexes are now up more than 20% since hitting three-year lows on Monday, which would technically be defined as a bull market. The Dow and S&P 500 are also still down over 20% from last month’s record highs, however.

Crucial quotes: “This week’s historic stock market rebound seems to be more of a bear market rally than a confirmation that the bottom is in place,” says Edward Moya, market analyst for Oanda. “Coronavirus worries and messy fundamentals will likely see skepticism remain on everyone’s mind.”

Tangent: “The U.S. is acting in a substantially more aggressive and rapid fashion than it did during the ’08-’09 financial crisis—not only has the Fed made a slew of major commitments (6 new lending facilities, unlimited QE, more), it’s executing on them too,” wrote Vital Knowledge founder Adam Crisafulli in a note on Friday. “The Fed’s asset purchasing pace has been ‘incredible,’ with its balance sheet hitting a new record of more than $5 trillion by Friday.”

What to watch for: “To be sure, this latest rally could be a bull market “head fake,” says Bell. “Economic data is deteriorating quickly, and we still have few signs on just how severe the economic impact will be,” she points out. “Earnings estimates are falling, and many companies are completely withdrawing guidance, making it tougher to investors to predict how low profits could go.” Indeed, U.S. consumer sentiment fell to a new three-year low on Friday, dropping to 89.1 in March from 101 in February, as the coronavirus continues to take a toll on the economy. Earlier this week, weekly jobless claims surged to a staggering 3.28 million—3 million more than last week and more than quadruple the previous weekly record of 695,000. 

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