Miracle on Wall Street: Stock market stages post-Christmas comeback as Dow makes biggest one-day gain ever

The surge followed after the worst Christmas Eve losses in history — and as the US endures a government shutdown

Clark Mindock
New York
Wednesday 26 December 2018 19:57
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Related video: Donald Trump boasts he could weaken US dollar ‘in two seconds if he wants to’
Related video: Donald Trump boasts he could weaken US dollar ‘in two seconds if he wants to’

Stock markets have surged just after the worst Christmas Eve trading in Wall Street history, with massive gains in the wake of the busy holiday shopping season.

Markets were open on Monday for an abbreviated session just a day before Christmas, and the S&P 500 dropped to lows that had analysts indicating the benchmark was on the cusp of becoming a bear market. But traders on Wednesday saw massive gains that erased the losses just two days earlier, and the Dow Jones Industrial Average saw the largest single-day increase in history.

On Wednesday — despite there being no identifiable news to act as a catalyst to the surge — the S&P 500 was up five per cent. Meanwhile, the Dow Jones Industrial Average was up 1,086 points, or about 5 per cent as well. The Nasdaq Composite gained 5.2 per cent, pulling that marker out of bear market territory.

"Investors went bargain shopping the day after Christmas, where stocks just got too cheap relative to earnings, future earnings, any reasonable assessment of earnings," Chris Rupkey, managing director of MUFG, told CNN. "The coast is clear, back up the truck, investors are saying enough already, the world is not ending."

Those incredible gains followed after a brutal day on Wall Street Monday, when the Dow Jones closed at its worst point since September 2017, and the S&P 500 hit its lowest mark since April 2017. The Nasdaq Composite closed at its worst point since July 2017. The markets have seen repeated declines in recent weeks, as well.

Among those driving the rosier outlook were companies like Amazon, which saw stock prices increase over five per cent after the company said that it had seen a record holiday season. Mastercard likewise announced massive holiday spending, with low petrol prices increasing consumer spending — the largest portion of the US economy.

Energy and Information technology sectors, as well as oil companies, also saw increases on Wednesday.

The stock market often sees surges in the final week of December, pushed along by the tendency for there to be little or no big news breaking.

The dramatic trading session on Monday came after US Treasury Secretary Steven Mnuchin tweeted that he had spoken with CEOs of America’s six biggest banks about the health of the US banking system. That tweet raised concerns that the Trump administration is aware of something that markets are not privy to.

President Donald Trump has been publicly supportive of Mr Mnuchin, but reports from CNN indicate that he may be frustrated with his Treasury Secretary. Mr Mnuchin supported the appointment of Jerome Powell as chairman of the Federal Reserve. Mr Powell has implemented monetary policies that Mr Trump has criticised.

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“They’re raising rates too fast because they think the economy is so good. But I think they will get it pretty soon. I really do,” Mr Trump said on Christmas of the Fed’s decisions to raise interest rates. Mr Trump was in Iraq during a surprise trip to visit American troops when markets closed on Wednesday, and had not tweeted the entire day.

Analysts suggest that the administration’s comments about the economy may be driving some of the declines that have been seen recently.

“The president’s angry talk about his displeasure with Fed Chairman Jerome Powell is a great example of the old adage ‘loose lips sink ships,’” Tom Block, the Washington policy strategist at Fundstrat Global Advisors, told MarketWatch. “Markets would not take well to the overt politicization of the Fed with the firing of the chair over displeasure with interest rate policy”.

Others, meanwhile, have raised concerns that the declines represent real stresses on the markets.

“The market’s volatility still seems to us to be more of a ‘run’ on the equity market based on fear rather than fundamentals,” said Dan Suzuki, portfolio manager at Richard Bernstein Advisors, told that website.

Mr Suzuki noted that the ongoing government shutdown could be impacting stock market rates.

“The difference between a run on the banking system and a run on the stock market is that the banking system has an explicit government backstop (FDIC),” he said. “In stark contrast, not only does the stock market not have a government backstop, but many of the drivers of the current volatility directly stem from government policy (trade, oil prices, the Federal Reserve, the government shutdown)”.

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