• The Dow Jones Industrial Average rallied on Wednesday, despite falling from session highs.
• Vaccine optimism and solid economic data helped boost U.S. stocks.
• Federal Reserve official Randal Quarles warns “sudden and sharp repricing” could pummel financial markets.

The Dow Jones gapped sharply higher on Wednesday, though the optimism about Moderna’s vaccine progress failed to sustain these early-session levels.

As the stock market heads for a solid (if unspectacular) close, one Federal Reserve official is warning that volatility could strike at any moment.

Dow Jones Rises as Vaccine Optimism & Economic Data Lift Wall Street

All three major Wall Street indices traded in relative unison on Wednesday afternoon.

As of 3:18 pm ET, the Dow had gained 125.69 points or 0.47% to rise to 26,768.28. That put the index more than 300 points off its session high.

The S&P 500 outperformed with a 0.62% bounce to 3,217.6, while the Nasdaq ticked 0.3% higher to 10,519.77.

There was plenty of economic data to unpack mid-week, and a slew of reports beat expectations. The Empire State manufacturing index trumped forecasts, as did industrial production.

Topping off the healthier picture of U.S. consumption, crude oil inventories contracted more than expected, falling a whopping 7.5 million barrels.

Unfortunately, economist James Knightley at ING does not believe that the U.S. economy can roar back to full strength despite the better data.

Knightley believes a much slower path awaits as investors remain cautious on the sidelines. He wrote today,

Manufacturing has surged in response to the re-opening, but output remains more than 11% below December’s level. Coupled with a weak corporate profits backdrop, there is little incentive to put money to work on capex, which will constrain the recovery story.

It is not just big business that could have a dampening effect on the Dow. The root of economic confidence lies in household consumption.

The Federal Reserve has repeatedly stressed this point, and Vice Chairman Randal Quarles put it even more bluntly in a letter to his fellow central bankers.

Quarles warned that although unprecedented levels of stimulus have supported financial markets amid a global economic crisis, assets such as stocks could suffer “sudden and sharp” repricing:

We may be seeing significant pricing disconnects between the market and economic fundamentals, which could result in sudden and sharp repricing.

Vaccine Hopes Boost Airlines, Hurt Tech

Today’s stock market movements had all the hallmarks of a vaccine-driven rally.

Moderna’s positive vaccine trial news provided a tangible boost to airline and cruise stocks, while “stay-at-home” stocks like Zoom came under pressure.

Risk sentiment may have been bolstered further by the CDC’s commentary that the U.S. could bring its outbreak under control in as little as four weeks – if everyone wears a mask.

Much like during the 2019 trade war saga, it seems the Dow heads higher every time there’s positive news about a vaccine.

If history repeats itself, then these trends can last a long time – even when the outcome appears to be priced in.

Dow 30 Stocks: Goldman Sachs Rises on Trading Revenue, Boeing Bounces With Airlines

It was a solid day throughout the Dow 30, and Boeing stock blazed a trail forward with a 3.6% rally.

Helping lift BA were its partner airlines, who all enjoyed a relief rally on optimism about progress towards a vaccine.

Raytheon Technologies was another top performer, rising an impressive 3.7%.

Goldman Sachs (+1%) became the latest major Wall Street bank to report earnings, and its results smashed expectations. Bolstering the figures were its best trading revenues in almost ten years, demonstrating that the investment bank cashed in on the market’s meteoric recovery.

More than two-thirds of the Dow’s 30 members traded in the green, but a big loss from UnitedHealth – its second-heaviest component – weighed on the index. UNH shares fell 2.6%.