Wednesday’s 4.96 percent climb of nearly 117 points in the S&P 500 is the best Dec. 26 on record, surpassing the 3.06 percent gain set in 1973, according to S&P Dow Jones indices.
It was the largest daily percentage gain for markets since March 2009. The Nasdaq composite rose 361 points, 5.8 percent, to close at 6,554. Both the S&P and the Nasdaq enjoyed their best day in three years. But despite the big gains, all three indexes are still in the loss column as the year’s end approaches.
“Today, the market’s message is that we have nothing to fear but fear itself,” said Ed Yardeni, president of Yardeni Research. “The recent sell-off reflected fears of an impending recession, which were blown away today by Amazon and other retailers reporting a record holiday selling season. Santa is back.”
Markets were stuttering through the early trading Wednesday morning, but they became more sure-footed after White House economic adviser Kevin Hassett assured reporters that Federal Reserve Chairman Jerome H. Powell’s job is “100 percent safe.” The market started surging after his remarks.
“Yes, of course, 100 percent,” said Hassett, the chairman of the president’s Council of Economic Advisers, when asked by reporters at the White House whether Powell’s job is secure. “Absolutely.”
Hassett, in an appearance on Fox Business Network, also said President Trump “is very happy” with Treasury Secretary Steven Mnuchin, who created worry last weekend when he phoned the chief executives of U.S. banks regarding the economy.
“The market needed something positive to hold on to, and when Hassett came out and said emphatically that Powell was safe, the market got what it perceived as good news, and that was all it needed to hear,” said Kenny Polcari of ButcherJoseph Asset Management. “The algorithms took the market up 1,000 points, just like they destroyed it on Monday.”
Trump’s criticism of the Fed and Powell has shaken Wall Street as it weathers its worst December in history. But Wednesday’s gains were broad and deep, with all 30 Dow components tilting positive. The Dow rose on the tails of surging blue chips Nike and Microsoft, each posting gains around 7 percent. The technology sector was strong, with Facebook rising 8 percent and Amazon nearly 10 percent. Consumer discretionary, energy and technology stocks paced the broad S&P 500. (Amazon chief executive Jeffrey P. Bezos owns The Washington Post.)
Crude oil prices surged, helping push the energy sector to a more than 6 percent gain. Oil prices notched their biggest increase in two years. West Texas Intermediate crude was up nearly 10 percent, at about $46 per barrel. Benchmark Brent crude increased more than 8.5 percent to more than $54 per barrel.
The post-holiday rally comes after a shortened Christmas Eve trading session left the Nasdaq deep into bear market territory and the S&P within a wisp of a bear market.
“A correction might have made sense, but today investors are probably thinking it has gone too far,” said Ed Keon, chief investment strategist at QMA.
Trump tried to create his own White House rally on Christmas Day when he suggested that the pullback in U.S. stock markets is a good buying opportunity for investors.
“We have companies — the greatest in the world, and they’re doing really well,” Trump told reporters at the White House. “They have record kinds of numbers. So I think it’s a tremendous opportunity to buy. Really a great opportunity to buy.”
The Dow, S&P and Nasdaq all finished down 2 percent or more on Christmas Eve. The Dow closed down 653 points.
Investors have been shaken by recent economic and political developments, including the abrupt resignation of Defense Secretary Jim Mattis; a partial federal government shutdown; an interest rate hike; speculation that Trump might seek to fire Powell; Mnuchin’s calls to U.S. banks; and Trump’s sudden decision to withdraw U.S. troops from Syria against the counsel of his national security team.
The president on Christmas Day cast fresh doubt on the record of Powell, whom he has increasingly blamed for the market weakness.
“Well, we’ll see,” the president said when a journalist asked whether he had confidence in Powell. “They’re raising interest rates too fast; that’s my opinion. But I certainly have confidence . . . I think that they will get it pretty soon. I really do.”
Presidents are rarely happy with interest rate increases, but Trump’s vocal criticism of Powell has Wall Street concerned.
“Markets are becoming more rattled by criticism of the Fed,” said Kristina Hooper, Invesco chief global market strategist. “The Fed instilled confidence despite the global financial crisis and government shutdowns. So while there is a minority view that stocks would rally if Powell were to be replaced, I believe it would cause a serious sell-off because of what it represents.”
“Having said that,” Hooper said, “the Fed should be more flexible regarding balance sheet normalization, given how powerful a tool it is.”