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.
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