March 27, 2020 - Stocks rose this week. Major indices posted massive gains Tuesday and Thursday which helped push them to double-digit increases for the week.
Some of this week's rally was likely technical as the market fell incredibly far incredibly fast. Some of it was also likely due to efforts by governments to calms markets. The Federal Reserve introduced even more measures designed to keep credit markets from freezing. Congress meanwhile spent the week working on a $2 trillion package of measures that will send checks to many Americans, extend unemployment benefits and also provide support to the health care system and troubled corporations.
Outside of government intervention, the weekly unemployment claims numbers were the biggest news. New claims for unemployment in the week ended March 20 came in 3.28 million. That topped all but the most pessimistic permissions. Futures had been indicating a lower open Thursday morning, but rallied after the number was released and stocks ended the day with the second giant gain of the week.
Thursday's rally after such a dismal economic number seems a bit paradoxical, but reminded us of action we've seen in crisis markets before. There was likely a bit of "buy the rumor sell the news" (reversed in this case) as traders covered short positions put on ahead of the report. We're inclined to see a bigger force in play though. An apocalyptic piece of data like the news that more than 3 million lost their jobs in a single week is a sign that government will almost certainly be compelled to intervene further in the economy, likely both on the monetary (Federal Reserve) and fiscal (Congress) sides.
This bad-news-is-good-news action harkens back to a number of periods since 2008 when the action in markets was largely driven by bets that the Federal Reserve would continue its quantitative easing program for longer, or keep rates lower for longer. Based on Thursday's reaction, and the genuinely unfathomable economic data we're likely to receive over the next several weeks, we'd expect some version of that trade to continue.
Which is not to say that we expect a rally every time negative news is released. Just that investors shouldn't be surprised when the market occasionally rallies on what seems like bad news for a while.
All told this week, the S&P 500 added 10.26%, the NASDAQ gained 9.05% and the Dow Jones Industrial Average rose 12.84%.