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Dow Jumps 500 Points As Investors Rally Around Fed, China Stimulus Measures

Topline

Stocks on Thursday continued to pare losses from this week’s sell-off as investors rallied around central bank stimulus measures following the Federal Reserve’s decision to keep its pandemic-era policy unchanged for now, with the People’s Bank of China announcing its biggest investment in the Chinese economy since January to provide relief amid the turmoil surrounding indebted property developer Evergrande.

Key Facts

The Dow Jones Industrial Average jumped 521 points, or 1.5%, to 34,780 by 11 a.m. EDT, with every stock in the index rising at least 0.5% as Salesforce, American Express and JPMorgan climbed between 2% and 4% each.

Meanwhile, the S&P 500 jumped 1.4% and the tech-heavy Nasdaq climbed 1.1%, similarly paring losses from earlier this week. 

Heading up the S&P’s gains, shares of Darden Restaurants soared 9% after the Olive Garden parent reported better-than-expected earnings of $253 million driven by a nearly 50% increase in restaurant sales, offering some respite to investors concerned about lagging summer growth due to the delta variant of Covid-19.

U.S. stock futures started climbing early Thursday after China’s central bank said it would inject about $17 billion (110 billion yuan) into the nation’s economy to help prevent ailing real estate giant Evergrande, the nation’s most indebted property developer, from defaulting on its debt this month—a possibility that sparked a global sell-off on Monday.

“The relief rally continues,” market analyst Adam Crisafulli, founder of Vital Knowledge Media, wrote in a Wednesday email, referring to emboldened sentiment among investors after the Federal Reserve on Wednesday decided to keep its monetary stimulus policy in tact for now and said a “gradual” reduction wouldn’t start until November at the earliest.

However, in another sign the economy may be too turbulent to ease support just yet, new jobless claims unexpectedly rose for a second week in a row this month, according to Labor Department data released Thursday, with another 351,000 Americans filing first-time jobless claims in the week ending September 18.

CRUCIAL QUOTE

“It’s now clear that Chinese officials won’t allow a disorderly default, and that’s really all global markets care about,” money manager Tom Essaye, president of Sevens Report Research, wrote in a Thursday note, adding the Fed’s Wednesday announcement helped ease concerns the central bank would quickly taper, or reduce, its $120 billion monthly asset purchases.

KEY BACKGROUND

In a policy meeting on Wednesday, Fed Chair Jerome Powell acknowledged inflation has risen beyond expectations and said broader economic progress, particularly in employment, may “soon” warrant a change in policy, but he doubled down on the Fed’s asset purchases, saying they “help foster smooth market functioning and accommodative financial conditions.” The stock market started to recover from its pandemic-induced crash last year on the day Powell pledged to use the central bank’s “full range of tools to support the U.S. economy” until “substantial further progress” is made toward a full economic recovery, but all eyes are now on when the stimulus may end. On Wednesday, Powell said the Fed may wind down asset purchases in full by the middle of next year, suggesting a gradual reduction of about $15 billion per month—an amount Essaye says shouldn’t scare off investors.

TANGENT

In the days since Evergrande’s debt woes triggered broad stock-market declines, fears have largely abated that the company’s collapse could cause systemic turmoil. However, Essaye and Crisafulli both warn the troubles are not yet over. Evergrande announced Thursday it wouldn’t miss an interest payment this week, but another $47.5 million payment is due next week, and the company still has about $305 billion in debt outstanding.

FURTHER READING

New Unemployment Claims Unexpectedly Rise Again As Fed Cautions Job Market Recovery ‘May Take A Longer Time’ (Forbes)

Stocks Rally After Fed Sticks To $120 Billion Monthly Stimulus (Forbes)

Dow Plunges 600 Points To Lowest Level In Two Months As Experts Fear Great Recession-Style Collapse With Evergrande (Forbes)

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