Nikola Stock's Big Shoes To Fill

By Nicholas Jasinski |  Wednesday, June 17

Consolidation. U.S. stocks dropped into the closing bell today, snapping a three-day winning streak. Major indexes had spent most of the day bouncing around the break-even line, before a bout of late selling pushed them solidly lower.

What exactly was the catalyst for stocks to dip lower in the afternoon wasn't clear, but the push and pull of stocks' bull and bear cases could be felt through the entire session. On the one hand, there was plenty of less-than-rosy news: coronavirus outbreaks in Beijing and the U.S., data showing Japanese exports down almost 30% in May from a year earlier, weaker-than-expected May housing starts in the U.S., and possible new regulatory scrutiny of social-media platforms.

But on the other, the global fiscal and monetary stimulus firehose remains as supportive of asset values as it has ever been. "Don't fight the Fed," as the saying goes.

In the end, the Dow Jones Industrial Average closed down 0.6%, the S&P 500 lost 0.4%, and the Russell 2000 dropped 1.8%. The Nasdaq Composite managed to eke out a 0.1% gain.

Even with the late-day drop, today was a calm day for the market relatively speaking, with a narrower intraday range than in recent sessions. That's a good sign, wrote Barron's Ben Levisohn today:

A nice, quiet day is just what the market needs. The stock market has been rallying again and looks overbought. One way to remove that overbought condition is to tumble, which is what happened last Thursday. Another is to do nothing. On Wall Street, that’s called consolidation.

And with Federal Reserve Chairman Jerome Powell testifying before Congress again on Wednesday, it has the perfect excuse to do nothing. Investors need to 'digest the Fed intervention and calibrate their thoughts on where to go next,' writes Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

Powell largely reiterated recent comments about how a full economic recovery will be slow and protracted, and that the Fed stands ready to lend support however it can. But he also put the onus on lawmakers to extend fiscal support programs for small businesses and unemployed workers. Letting those run out with no replacement in the coming months could pull the rug out from under companies and consumers—and thereby the economic rebound.

Alongside the liquidity and low interest rates offered by the Fed, investors are counting on those fiscal measures to remain in place long into the recovery. A bill will eventually come, even if it takes sizable market declines to make a deal happen.