Fed’s Powell says don’t ‘bet against American economy’— even as unemployment could rise to 25%

U.S. stocks soared at the start of Monday trading after drugmaker Moderna announced positive, early results from its first human trial of its experimental Covid-19 vaccine.

Risk assets also received a boost after Federal Reserve Chairman Jerome Powell on Sunday night struck a more upbeat tone on the U.S.’s growth prospects, while highlighting that the central bank still retained tools to limit the economic blow from the coronavirus.

What are benchmarks doing?

The Dow Jones Industrial Average US:DJIA surged 735 points, or 3.1%, to 24,421. The S&P 500 US:SPX rose 76 points, or 2.6%, to 2,939. The Nasdaq Composite US:COMP added 173 points, or 1.9%, to 9,188.

On Friday, the Dow rose 61 points, or less than 0.3%, to 23,685.42, while the S&P 500 rose 11.20 points, or 0.4%, higher to end the session at 2,863.70. The Nasdaq Composite Index closed at 9,014.56 after gaining 70.84 points, or 0.8%.

Stocks closed out last week lower, with the Dow down 2.7%, the S&P 500 losing 2.3% and the Nasdaq 1.2% lower — marking their worst weekly skid since the period ended March 20.

What’s driving the market?

Moderna Inc.announced positive results from a phase-one clinical trial for its experimental coronavirus vaccine, providing a jolt to markets that have been hopeful for a remedy or vaccine for the deadly illness that has stricken more than 4.7 million world-wide so far, according to data compiled by Johns Hopkins University.

“These interim Phase 1 data, while early, demonstrate that vaccination with mRNA-1273 elicits an immune response of the magnitude caused by natural infection starting with a dose as low as 25” micrograms, Moderna chief medical officer Dr. Tal Zaks said in a news release. The next step is a Phase 2 trial, which has been approved to move forward by the Food and Drug Administration. The trial was done in partnership with the National Institute of Allergy and Infectious Diseases.

Stock-market bulls also gained confidence following U.S. central bank chief Powell’s remarks that the Fed would continue to support the economy and financial markets through the viral outbreak.

In an interview with CBS’ “60 Minutes” program, Powell said that the road to recovery for the U.S. may take a while and consumers may lack conviction until efforts to find a vaccine for the illness derived from the novel strain of coronavirus are successful.

That said, the monetary-policy maker struck a cautiously sanguine tone about the likelihood for a rebound for an economy that has shown signs of the extreme toll taken on it by measures put in place to limit the spread of the pathogen.

“In the long run and even in the medium run, you wouldn’t want to bet against the American economy,” Powell said during the television interview. He did caution that a second wave of infections could rattle confidence further.

Powell also acknowledged that the unemployment rate could hit as high as 25%, marking levels not seen since the Great Depression. But the Fed boss said that he didn’t fear a second depression for the U.S., forecasting that an economic rebound would start to take shape in the second half of the year.

Meanwhile, data on Monday showed Japan’s economy, shrank by an annualized 3.4% in the three months ended March 31 after a 7.3% contraction in the previous quarter, meeting the commonly accepted definition for a recession.

Still, plans to restart stalled economies inside and outside the U.S. have continued to act as a support for markets which have mostly been stuck in a narrow trading range since rising from March 23 bear-market low.

“The good news is economies across the globe are starting to reopen, suggesting that some activity will begin to recover compared with the full lockdown experienced in April,” wrote Hussein Sayed, chief market strategist at FXTM in a note. “However, will there be a price to be paid for the easing of restrictions?”

Rising cases in the U.S., however, where there are more than a third of the 4.7 million world-wide infections, has underpinned fitful trade in assets considered risky. Deaths in the U.S. rose above 89,500, more than a quarter of the more than 315,000 world-wide, according to figures from Johns Hopkins.

Which stocks are in focus?

  • Tesla Inc. US:TSLA was given the green light from local officials to resume operations at its Fremont, Calif., auto plant, according to the San Francisco Chronicle in a Sunday report, ending a battle with Alameda County officials, who had barred the opening of factories and manufacturing facilities to slow the spread of coronavirus.
  • Uber Technologies US:UBER shares will be in focus after food-delivery company Grubhub Inc. US:GRUB said it rejected a recent buyout offer from the ride-sharing company.
    SoftBank Group Corp. JP:9984 is in talks to sell a significant portion of its T-Mobile US Inc. US:TMUS stake to controlling shareholder Deutsche Telekom AG US:DTEGY as the Japanese technology conglomerate scrambles to raise funds.
  • Shares of Moderna US:MRNA were up more than 30% after the company’s report on its experimental vaccine.
  • Hertz Global Holdings Inc. US:HTZ said Monday it has named Paul Stone as the new chief executive to replace Kathryn Morinello.
  • Occidental Petroleum Corp. US:OXY shares were trading sharply higher after French oil company Total canceled its plan to buy Occidental’s assets in Ghana.
    Apple Inc. shares US:AAPL rose after the iPhone maker said it would reopen more than 25 stores this week.

How are other markets trading?

The global rally in risk assets weighed on haven assets, with the 10-year Treasury note yield BX:TMUBMUSD10Y rising 4 basis points to 0.678%. Bond prices move in the opposite direction of yields.

In precious metals, gold futures for June delivery US:GCM20 fell 0.5% to $1,747.70 an ounce. Meanwhile, crude prices continued to show steady gains as June oil futures US:CLM20 rose 10% to $32.44 a barrel, around a two-month high.

In global equities, the Stoxx Europe 600 index XX:SXXP climbed 3%, while Japan’s Nikkei JP:NIK rose 0.5%.

The greenback weakened against a basket of its major rivals, with the ICE U.S. dollar index US:DXY trading down 0.3%.

Author: Mark DeCambre

Source: Market Watch: Dow soars more than 700 points, after favorable, early results for coronavirus vaccine candidate

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