The Dow Jones Industrial Average on Thursday booked a fourth straight gain, its longest run since late April, partly on the back of a burst higher in Boeing shares, but the broader market paused as investors found it difficult to push equity values demonstrably higher.
Overall sentiment over the past week has been boosted by efforts to restart the U.S. economy after business closures meant to combat the spread of the pandemic, and a report on weekly jobless claims did little to dissuade the bulls that equities have more room to run.
What droves the market?
Although the S&P 500 index and the Nasdaq snapped a winning streak, the underlying tendency of U.S. equity markets has been to drift higher.
While “it never feels comfortable” to see the stock market running ahead of the economy, said Randy Frederick, vice president of trading and derivatives at the Schwab Center for Financial Research, in an interview with MarketWatch, that’s always been how markets work. “Investing is an act of optimism. That’s what the market is telling us: things are going to get better.”
Another 1.9 million U.S. workers applied for first-time unemployment benefits in the week ended May 30, a bit higher than the 1.8 million consensuses among economists polled by MarketWatch. While grim, the data suggest that the economy may have seen the worst of the impact of the epidemic.
Private-sector employment data on Wednesday showed that a total of 2.76 million jobs were lost in May, Automatic Data Processing Inc. reported, but that loss also was far less severe than the 8.66 million forecast by Econoday. That report is often considered an early look at the Labor Department’s payrolls data, due Friday.
Equity benchmarks in the U.S. have recovered from their March 23 lows, partly on the back of optimism surrounding the reopening efforts and evidence of a slower spread of the deadly infection as the summer gets underway, though some worry that recent a flare-up in infections could still occur.
Also, another help is coming from Boeing’s Recovery Helps Dow Jones Play Catch Up.
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 have 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.
Dow Jones 30 Long (Buy)
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