As the bell rang at the close of Wednesday’s trading session, US equities officially logged their best 50-day streak ever. After a 40% rally in less than two months, the benchmark S&P 500 index is now only 8% from the all-time highs it set before the coronavirus pandemic took hold in February and is already back at December levels.
It’s a truly amazing bounce and recovery from the lows of last quarter when we were staring down the face of the greatest crash and recession since 1929. We might not be out of the woods just yet, but investors and Wall Street are certainly acting like the worst is over.
Equity charts were a sea of green yesterday as investors continued to flood back in on the long side with risk-on sentiment at its highest level for months and more than 98% of the S&P 500 index’s components trading above their 50 day moving average.
Optimism has been increasing on a daily basis as over the past few weeks states around the country and countries around the world have been rolling back COVID related restrictions and the wheels of the economy grind back into gear.
Economic data is also playing a part, with the private payrolls report nowhere near as bad as expected. Even though there was still a drop of 2.76 million in May, the experts had forecasted a drop of 8.75 million. This understandably added fuel to the rally.
We’ve also had several earnings reports from some of the big players which show that the topline damage from last quarter was nowhere near as bad as initially expected and many of the big names are already trading higher than where they were pre-COVID. Unsurprisingly, this kind of optimism has been most evident in tech, as seen in the NASDAQ 100 index which actually matched its all-time high during Wednesday’s session.
The Dow Jones Industrial index is understandably the laggard of the big three benchmarks, as it was most affected by the shutting of factories, the collapse in demand for hardware, the drop in oil price and the grounding of flights. In particular, shares of Boeing (NYSE: BA) were hit hard last quarter and fell 73% in just four weeks through the middle of March, making it one of the worst performers in the Dow.
We saw the airlines cancel flights and shut down and demand for Boeing’s planes shriveled up. But in the eight weeks since those lows, the $100 billion behemoths has managed to rally 80% and is up 20% this week alone. It further buoyed by reports on Wednesday stating it had been added to the much-watched Third Point Offshore Fund, run by Dan Loeb. SMBC Aviation Capital also announced they would not delay or cancel parts of an existing order for 113 737 MAX planes.
\As the travel industry comes back to life and passenger numbers continue to increase, demand for Boeing’s offerings will increase also. Domestic air travel in China is already back to 50% of pre-COVID levels and many on Wall Street will be looking for a similar bounce in the US. In the meantime, Boeing’s defense business will have to step up and become the primary cash generator. This is an understandably cycle-proof segment composed of multi-year and multi-billion contracts with one of the world’s strongest organizations, the US military.
Boeing shares were up 4% in early trading on Thursday so it looks like there’s some room yet for the momentum of the past few weeks to keep going. The Dow is certainly happy to have them as a component now while it plays catchup to the other two indices and tries to reclaim February's levels.
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