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Dow Jones recovers all losses from Monday with two-day consecutive rallies. Interestingly, the bond market is also fuelling optimism on Wall Street.
On Wednesday, July 21, Wall Street cheered with US stocks climbing for the second consecutive day. The Dow Jones Industrial Average (INDEXDJX: .DJI) was up 0.83% or 286 points recovering the early-week losses of Monday. Now, Dow Jones is just another 1% away from its record-high levels.
Earlier on Monday, July 19, Dow Jones tanked 725 points as Wall Street investors feared the growing number of COVID-19 delta variant cases. But the two-day consecutive rally has helped Dow restore its previous levels. In a report on Wednesday, Thomas Essaye of Sevens Report Research said:
“Tuesday was a textbook oversold bounce following Monday’s collapse. Beyond short-term gyrations, however, for value and cyclicals to reassert leadership, we will need to see yields bottom and economic growth beat estimates (two things we think will happen).”
Stocks linked to the growth aspect associated with the reopening of the economy bounced the most. Cruise company Carnival Corp (NYSE: CCL) was up 9% on Wednesday. Similarly, shares of Las Vegas Sands (NYSE: LVS) were up by 3.4%.
Energy stocks also continued to rally as oil prices were up after falling to less than $70 per barrel on Monday. The Energy Select SPDR jumped 3.4%.
Bond Market Fuelling Optimism
As per the CNBC report, the 10-year Treasury yield is currently driving the equity market. On Wednesday, July 21, the yield surged by 8 basis points to 1.29%. Earlier on Monday this week, the yield dropped to a five-month low.
But despite the recent bounce back, the trend is still down. Back in February 2021, the 10-year Treasury Yield was above 1.7%. On Wednesday, Goldman Sachs’ Chris Hussey said:
“The catalyst for why investors have become comfortable with risk assets over the past two days is admittedly elusive. Perhaps investors have just come to embrace the notion that the reaction function to a new wave of the virus is unlikely to be the same as the reaction function employed in the spring of 2020.”
However, some strategists have also warned that markets would stay more volatile going ahead. Thus, they expect deeper pullbacks as investors juggle between inflation fears and rising COVID cases.
“I think what we’ve seen here are the early warning shots of a correction that we’ll see probably… in late August, September, October,” explained Matt Maley, equity strategist at Miller Tabak.
But in the last 14 months, the spike in the Covid cases hasn’t much impacted the stock market. On the other hand, rising vaccination is a big positive. Thus, analysts believe that investors will continue to buy the dips.