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The rally we've seen the past few weeks sped up Monday, with the Dow gaining more than 900 points – even though we had two investing legends say last week that things were looking bad for both the stock market and the economy.
That's this week's Reality Gap. Let me explain…
As you saw me saying last week on FOX Business Network's "Varney & Co.," and on our own Markets Live livestream, the Fed's and Congress's financial stimulus allowed traders to move markets up above the key support levels recently, and pushed them up big time late on Friday.
Then U.S. Federal Reserve Chair Powell appeared on "60 Minutes" Sunday night. Two quotes from the Fed Chair were particularly important in driving the market's reaction.
First, he said he has plenty of ammunition left if more stimulus is needed, showing that the Fed is not "out of ammunition" to fight further economic downturn: "There's really no limit to what we can do in lending programs."
The second was that the economy could recover over the second half of this year. It was an intermediate-term pronouncement on economic possibilities: "Assuming there is not a second wave of the coronavirus, I think you will see the economy recover steadily through the second half of this year."
Then on Monday morning, biotech firm Moderna Inc. (NASDAQ: MRNA) announced positive results from its early trial of an experimental vaccine against COVID-19. This phase 1 study looked only at safety, and there were no significant side-effects among the patients. But the fact that all the patients in the small dose vaccine subset developed antibodies the same as a recovering COVID-19 patient really stoked the stock markets.
The mood, in other words, is bullish. (Cue The Beach Boys' "Good Vibrations"!)
About the Author
Nationally recognized technical trader. Background in engineering, system designs, and risk reduction. 26 years in the markets.