Dow Jones Index Rises on Hope of COVID-19 Cure
By Dale Gillham | Published 20 April 2020
Last week, Gilead Sciences rose around 14 percent on the hope it would deliver a COVID-19 cure. The rise occurred after researchers from the University of Chicago witnessed a rapid recovery in 125 patients suffering from COVID-19 who were given the Gilead Sciences experimental drug Remdesivir, as part of a clinical trial. Gilead Sciences is up 32 per cent since the end of January and is looking good right now.
The positive news of a possible cure by Gilead Sciences saw the Dow Jones Index rise last week. In fact, the Dow has risen around 30 percent over the past 18 days from 23 March to 17 April although it only rose just over 2 per cent last week, which is a sign that the upward move is slowing.
Right now, I believe the Dow Jones is rising on hope rather than good economic fundamentals. Unemployment in the USA is rumoured to have risen to 15 percent and could go much higher with job openings down 60 percent in March. Retail sales were also down nearly 9 percent while industrial production and manufacturing were down over 5 and 6 percent respectively.
Interestingly, food and beverage sales were up in March over 25 percent while clothing and accessories were down 50 percent, with furniture and homewares down around 26 percent.
So far earnings season has not really provided any big shocks with companies reporting earnings are less than 10 per cent below estimates. While this is good news, we need to remember that January and February were good months and the real hit to earning is likely to occur in the next quarter (April, May and June).
A further hit to the economy is coming from residential building activity, which essentially collapsed in March in the worst monthly decline since the 1980’s. According to the Commerce Department, last month the seasonally adjusted annual construction rate was 1.2 million units, down from a 1.56 million pace in February. Further statistics revealed that the construction of single-family homes fell 17.5 percent, while construction on new apartments and condominiums fell by 32.1 percent in February.
While the Dow Jones has been rising over the past few weeks, the economic figures are indicating that the rise is unsustainable. Given this, it is very likely that the rise is occurring on hope rather than solid economic figures. We need to expect that the slight bullishness will run out of steam very soon and the Dow Jones will fall again but how far is the real question. There is still a real possibility it will fall to around 15,000 points before finding any real support.
For now good luck and good trading.
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