- Summary:
- The Dow Jones index rally continued as billionaires hoarded more than $4.7 trillion as they wait for a crash. Dow is now waiting for the Fed decision
The Dow Jones index rose by more than 500 points after some positive news from Gilead. The company said that a study of its remdesivr drug showed some signs that it could treat coronavirus. The study was done by the National Institute of Allergy and Infectious Diseases. The index ignored the disastrous Q1 GDP data as traders waited for the Fed interest rate decision.
Corporate earnings give Dow Jones a boost
The Dow Jones index reacted positively to a number of earnings today. The biggest result was from Boeing, the troubled plane manufacturer. The company shares rose by more than 4% in premarket trading even after it said it was burning through $4.3 billion. It also made a $631 million loss from revenue of more than $16 billion. The company said it would slash 10% of its workforce.
General Electric was another big mover today. The stock declined by almost 2% after the company missed analysts revenue and earnings. Its total revenue declined by 8% to $20.5 billion. The company warned that the second quarter would be difficult because of the pandemic. It also blamed its weakness on its aviation business, which has been affected by lower demand from Boeing and Airbus.
Other companies that were watched closely were Alphabet, Garmin, Hasbro, ADP, Ford, Mondelez, and Yum brands among others. Alphabet’s earnings per share of $9.87 missed the estimated $10.33 while Starbucks earnings per share missed consensus by 2 cents.
Billionaires hoarding cash
Even as the Dow Jones rallies, a unique scenario is happening. According to UBS, most billionaires are sitting in cash waiting for the Dow to decline again. The report showed that 61% of wealthy people held cash as they waited for another dip of between 5% and 20%. A smaller number of these smart money said that now was a good to buy stocks.
This is seen clearly when you look at the amount of liquid assets (cash) that is ready to be deployed. According to Morgan Stanley, wealthy people have more than $4.7 trillion in cash and money market funds. This is the highest the figure has been since the 9/11 attacks. Just last week, Nassim Taleb warned investors that the current rally could be affected by more pandemics.
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Dow Jones technical outlook
The Dow Jones index cruised past the 50% Fibonacci Retracement level of $23,980. On the daily chart, the index has also moved above the 50-day exponential moving averages. As a result, I expect bulls to be in total control as they attempt to test the 61.8% retracement level of $25,312. This trend will continue unless the index moves below the 50% retracement level again. This will send a sign that there are more sellers in the market.