The moderate rally predicted by stock futures Sunday turned into a major one Monday with all three major Wall Street indices finishing more than 4% above their closings Friday, and out of correction territory into which they plunged during Wall Street's worst week since 2008.
The Dow Jones Industrial Average led the rally, closing 1,284 points higher, or up 5.1%, to 26,693.84 points. Monday's rally was the best one-day point gain in Dow history. It stands in stark contrast to the 1,190 point loss it suffered on February 25, the largest single-day loss in its history. The Dow lost 3,500 points in five bloody days last week
The S&P 500 gained 3,091 points to end the day 4.61% higher at 3,090.54, while the NASDAQ Composite rose 4.49% to 8,952.16. These huge gains snapped seven-day losing streaks for the Dow and S&P 500.
The Dow, S&P 500, and the NASDAQ all fell more than 10% last week, their largest weekly declines since the Great Recession in October 2008. They also entered correction territory, down more than 10% from all-time highs attained in early February. The rally might be short-lived, however, since analysts concur the bottom hasn't been hit.
"I wouldn't put too much into this," said Peter Cardillo, chief market economist at Spartan Capital Securities. "Although I think we're getting close to putting in a bottom, I still think we need to drop another 2% to 3% to have some sort of capitulation."
He also pointed out long-term U.S. Treasurys are still trading near record levels. Even a sharp fall in the much-awaited Chinese manufacturing index revealed Monday failed to dissuade investors from jumping into equities once again.
The Caixin/Markit Manufacturing Purchasing Managers' Index (PMI) came in at its weakest level ever. It reads 40.3 for February, which is far below expectations of a reading of 45.7 by economists in a Reuters poll. PMI readings above 50 indicate expansion, while readings below 50 signify a contraction.
All 30 stocks in the Dow posted gains. Most of the gains were accounted for by Apple, Inc. (up 9.3%), The Boeing Company (up 5.1%) and UnitedHealth Group Inc. (up 7.1%).
Analysts said investors battered by the bloodbath last week when the indices wiped-out their gains for the year due to the COVID-19 scare were looking for any excuse to jump back in. Statements from the U.S. Federal Reserve, the Bank of Japan and the Bank of England to the effect they stood ready to resort to stimulus was that excuse.
Again, investors acted counter-intuitively since the COVID-19 the outbreak that triggered last week's historic selloff has gotten worse since that time. The outbreak has far worsened in the United States, where five deaths have been reported since Saturday.
Three more deaths were reported Monday, all of them in Washington State. More than 8,400 people are being tested for the virus in California while New York State, Rhode Island, and Florida reported their first COVID-19 cases on Sunday and Monday.
"The market has been conditioned to buy on any weakness," said Keith Buchanan, portfolio manager at investment advisor Globalt, Inc. "I think we'll look back at these past few years at some point as some level of complacency. Buying the dip takes more bravery now," said Buchanan.
