The Dow is rallying – but multiple threats hang over stock market

The Dow Jones Industrial Average (DJIA) achieved a moderate gain on Tuesday, though multiple threats hang over a cautious stock market. Congress remains deadlocked as the economy awaits the next round of stimulus, while Wall Street bulls nervously eye the historically turbulent waters of the late summer trading period.

Minutes before the closing bell, the Dow Jones had secured a gain of 113.31 points or 0.42%. That lifted the blue-chip index to 26,777.71. The S&P 500 and Nasdaq lagged behind, rising 0.16% and 0.07%, respectively. It was a quiet day on the economic data front. U.S. factory orders (+6% versus an estimate of +5.1%) were the highest tier of stats released.

More pertinent for stocks is the state of the stimulus debate in Congress. Progress appears to be sluggish. With no agreement in place nearly a week after federal unemployment benefits expired, it appears Republicans and Democrats are further apart than many investors realized. One of the major sticking points is the size of the bailout. House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer argue a $3.4 trillion bill is necessary to address the unprecedented economic damage the pandemic caused. Conservative lawmakers don’t want to budge from their proposal’s $1 trillion sticker price.

August, September, or October have often been difficult markets for equities – due to real events and potentially as investors start to close their books, especially for the summer holiday. This likely started by happenstance though some risk reduction as the year ends is also a trigger which created statistics which then affect trading systems.

Since these seasonal factors have often proven to be self-fulfilling prophecies, equities could, at the very least, face additional volatility in the coming weeks.

Oil supermajors Exxon Mobil and Chevron headlined the Dow Jones winners with gains of 2.7% and 1.9%. It’s unclear whether the shocking explosion in Beirut could increase tensions in the Middle East. This uncertainty may be supporting crude prices (+1.5%).

The Dow Is Rallying – But August Could Be an Insanely Turbulent Month, CCN, Aug 4