Monday's Stock Market Open: US Equities Rise As Traders Buy On Dip After Friday’s Huge Sell-Off

U.S. stocks surged on Monday as investors waded back into the market finding bargains after Friday’s massive sell-off on coronavirus worries in China.

The Dow Jones Industrial Average rose 204.14 points to 28,460.17 while the S&P 500 gained 21.94 points to 3,247.46 and the Nasdaq Composite Index advanced 116.23 points to 9,267.16.

“We are looking for higher highs in the S&P 500 Index once the Coronavirus fears subside,” said Marc Chaikin, CEO of Chaikin Analytics, in a note. “Buying opportunities abound in strong sectors and industry groups.”

However, Mohamed El-Erian, chief economic advisor at Allianz, advised investors to refrain buying shares now.

“The coronavirus is different. It is big. It’s going to paralyze China. It’s going to cascade into the global economy,” El-Erian told CNBC on Monday. “We should try and resist our inclination to buy the dip.”

After being closed for several days for the lunar year holiday, the Shanghai Composite index plunged 7.72% lower, its largest daily decline in more than four years.

In China the death toll from the virus outbreak climbed to 361 while more than 17,000 people were infected. The first death outside of China was reported in the Philippines.

On Sunday Chinese authorities said they will flood the country’s financial system with 1.2 trillion yuan ($174 billion) in extra liquidity to provide a boost to markets and the economy.

On Monday the People’s Bank of China cut the interest rate it charges banks for short-term funding.

China now supersedes all other macroeconomic and geopolitical worries.

“No one cares about the Middle East, no one cares about Brexit if China is wobbly,” said Mathan Somasundaram, Blue Ocean Equities market portfolio strategist in Sydney, Australia. “There’s no way China is going to be consuming anything if they’re shut down.”

Goldman Sachs predicted that the virus may lower Chinese growth to 5.5% for the year, down from 6.1% in 2019. Economists at Citigroup said the steps announced by Chinese authorities were “unlikely” to be sufficient to prevent an economic downturn in the first quarter.

“As most employees won’t return to work until [Feb. 9],” Citigroup said, “The output losses are likely to be larger than expected, and incoming economic activity data will continue to prompt the authorities to take more actions in order to reduce the adverse impact of the Wuhan coronavirus on the economy.”

“The shorter-term uncertainty around the coronavirus is really affecting everything,” said JJ Kinahan, chief market strategist at TD Ameritrade. “You may continue to see sort of reallocation.”

Saudi Arabia said it may enact a drastic, short-term cut in oil output in response to the impact of the virus on crude demand.

The Institute for Supply Management said on Monday that its index of national factory activity jumped to a reading of 50.9 in January, the highest level since July, up from an upwardly revised 47.8 in December. (A reading above 50 indicates expansion in the manufacturing sector). The index had contracted for five straight months.

The Commerce Department said on Monday that construction spending decreased 0.2% in December, the first such decline since June

Also in Asia, Hong Kong‘s Hang Seng index edged up 0.17% and Japan’s Nikkei-225 fell 1.01%.

In Europe markets closed higher, as Britain’s FTSE-100 rose 0.71%, France’s CAC-40 climbed 0.52% and Germany’s DAX gained 0.5%.

Crude oil futures dropped 2.15% at $50.45 per barrel and Brent crude fell 1.76% at $54.86. Gold futures slipped 0.42%.

The euro dipped 0.31% at $1.1062 while the pound sterling plunged 1.52% at $1.3003.