The Dow Finished Higher — but Maybe Not For the Reason You Think It Did

The stock market gained on Monday, and the debate raged about the reason behind the rally. Was it a recuperating president? Fewer worries about a contested election? Or hopes that a Covid relief package would finally get passed in Washington? We choose none of the above.

The stock market had a great day. The Dow Jones Industrial Average advanced 465.83 points, or 1.7% to 28,148.64 on Monday, while the S&P 500 rose 1.7% to 3408.60, and the Nasdaq Composite advanced 2.3% to 11332.49.

Just because the headlines are dominating our head space doesn’t mean they’re driving the market. We’d point to other factors: A potential reassessment of Friday’s job report, perhaps, or even a continuous flow of upbeat, forward looking data. Today’s came from the ISM Services survey, which rose to 57.8 in September, a level that indicates continued growth. “The good numbers just keep coming,” writes Joel Naroff, president and chief economist at Naroff Economics. “Today, the Institute for Supply Management reported that activity in the service and construction portions of the economy continued to improve in September.“

Which isn’t to say that stimulus isn’t still being bandied about. It is. But the odds it getting passed between now and the election seem low, according to Blake Gwinn, head of front-end rates strategy for the Americas at NatWest Markets, if only because of the nomination of Amy Coney Barrett to the Supreme Court. “Getting the Barrett nomination through, and in turn stopping it, seems to be the two parties’ respective priorities in the Senate right now, and stimulus could end up being collateral damage,” he writes. “Last Friday, I said that I was still doubtful that we would get a deal before Congress recesses at the end of this week, and that is still my view until I see some more concrete signs of a breakthrough.”

One could be coming, at least for the stock market. Instinet’s Frank Cappelleri observes that the S&P 500’s biggest one-day gain in nearly a month helped the benchmark cross back above 3400 for the first time since mid-September, and put it firmly above its 50-day moving average as well. “This was more than enough to finally void the SPX’s bearish pattern,” he writes. he final push also triggered the smaller of the two bullish formations we’ve been watching. The upside target is 3,570.”

And that would be great, whatever the reason.

Write to Ben Levisohn at Ben.Levisohn@barrons.com