If you glanced at the headlines early Monday morning, you probably thought the wheels were falling off.
Stocks tanked.
The Dow Jones Industrial Average opened deep in the red, at one point dropping roughly 1% as investors panicked over a sudden criminal probe into Federal Reserve Chair Jerome Powell. It was chaotic. But by the time the closing bell rang at 4:00 PM ET, the narrative had completely flipped.
So, how did the dow close yesterday? The Dow finished the day at 49,590.20, eking out a gain of 86.13 points, or about 0.2%.
It wasn’t a massive surge, but considering the index started the day by shedding hundreds of points, the recovery was massive. It’s funny how the market works. One minute everyone is dumping shares because of a DOJ subpoena, and the next, they’re buying back in because Alphabet hit a $4 trillion market cap.
The Morning Panic and the DOJ Factor
The day started with a gut punch. Reports surfaced that the U.S. Attorney’s office had opened a criminal investigation into Fed Chair Jerome Powell. That’s not exactly the kind of news that makes people want to hold onto cyclical stocks.
Whenever there’s friction between the White House and the Fed, the Dow feels it first. Traders hate uncertainty. The initial sell-off was sharp, driven by fears that the Fed’s independence was under siege.
Adding fuel to the fire, President Trump called for a 10% cap on credit card interest rates. Honestly, that sent shockwaves through the financial sector. If you own bank stocks, yesterday was a rollercoaster you didn't ask to ride.
Alphabet to the Rescue
While the big banks were struggling, Big Tech stepped in to provide the floor. Specifically, Alphabet (GOOGL).
The company hit a $4 trillion valuation, a milestone that seemed to calm the nerves of everyone on the floor. It wasn’t just a vanity number, though. Alphabet announced a string of massive partnerships over the weekend—Walmart, Wayfair, and Shopify are all leaning into their Gemini AI for shopping.
- JPMorgan Chase (JPM) and Goldman Sachs (GS) were among the day's laggards, feeling the heat from the proposed interest rate caps.
- Alphabet rose over 1%, acting as the primary engine for the afternoon rebound.
- Gold actually spiked nearly 2%, as nervous investors looked for a place to hide while the DOJ-Fed drama played out.
Why the Market Stopped Caring About the Drama
It’s easy to get caught up in the "why" behind a single day's movement. Basically, investors realized that while the DOJ probe is serious, the underlying economy is still showing signs of a "soft landing."
We just saw a December jobs report that was, well, lukewarm. Only 50,000 jobs were added. While that sounds bad, it actually gave the market hope that the Fed won't have any reason to hike rates further.
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The Dow is sitting at a very high level right now, up about 3.2% for the year already. We are only two weeks into January! People are looking for any excuse to take profits, and the morning news gave them one. But the "buy the dip" mentality is still incredibly strong.
A Quick Look at the Other Indexes
The Dow wasn't alone in its weird day. The S&P 500 rose 0.2% to close at 6,977.27, setting yet another record. The Nasdaq added 0.3%, finishing at 23,733.90.
Even small caps got some love. The Russell 2000 rose 0.4%. It’s clear that the rally is broadening out, even if the "Magnificent Seven" still do most of the heavy lifting.
What This Means for Your Portfolio Today
If you’re wondering how did the dow close yesterday because you’re worried about a crash, take a breath. Yesterday proved that the market has a high pain tolerance for political drama right now.
However, we aren't out of the woods. This morning, we are looking at the Consumer Price Index (CPI) report. If inflation comes in hotter than the expected 2.7%, that 86-point gain from yesterday will vanish in about five minutes.
We also have the big banks—JPMorgan, BNY Mellon, and Delta Air Lines—reporting earnings today. This is the real test. We will finally see if the record-high stock prices are actually backed up by record-high profits.
Actionable Next Steps for Investors
- Check your exposure to financials. With the talk of interest rate caps, credit card issuers like American Express (AXP) and Discover might see continued volatility.
- Watch the 49,000 level. The Dow has been treating this as a psychological floor. If we break below it on high volume, the "Santa Claus Rally" might officially be over.
- Keep an eye on Gold. The fact that gold is rallying alongside stocks suggests that even the bulls are buying a little bit of insurance.
- Stay tuned for the CPI data. This is the single most important number for the week. It determines everything the Fed does next.
The market is currently in a "show me" phase. It recovered from the shock of the Powell investigation, but it needs a clean inflation report to keep this momentum going.