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Stock Market Wrap-Up: Here's Why 2 Coronavirus-Crushed Stocks Bounced Today

By Dan Caplinger – Updated Apr 6, 2020 at 4:39PM

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Huge gains for market benchmarks were still less than the 30% to 40% jumps these two stocks saw.

Monday brought a nice recovery for the stock market, which gained on hopes that the coronavirus outbreak in the U.S. might finally be approaching its peak. Gains were broad-based within the Dow Jones Industrial Average (^DJI -1.11%), with all 30 of its component stocks gaining ground on the day. The Dow, S&P 500 (^GSPC -1.03%), and Nasdaq Composite (^IXIC 0.00%) all managed to climb 7% to 8% Monday.

Today's stock market

Index

Percentage Change

Point Change

Dow

7.73%

1,627

S&P 500

7.03%

175

Nasdaq Composite

7.33%

540

Data source: Yahoo! Finance.

Big gains were common across the market, but there were still some noteworthy performances. Wayfair (W -5.38%) has gotten hit hard because of fears about whether the online home furnishings retailer would be able to keep growing in a potential recession, but sales in one particular category appeared to save the e-commerce specialist. Elsewhere, mortgage REIT Two Harbors (TWO -8.10%) has had to take extraordinary action to counter some of the disruptions to the financial markets during the pandemic, but it bounced back after its latest report on how it's faring.

Coming home

Shares of Wayfair soared 40% Monday following the e-commerce furniture company's latest business update. Contrary to many investors' fears, Wayfair has seen considerable success during the pandemic.

Furniture set in an open room with large windows.

Image source: Wayfair.

Wayfair has seen strong demand throughout most of its product categories, and surprisingly, things picked up as the first quarter progressed. Revenue gains in January and February were just below 20% year over year, but that growth rate more than doubled toward the end of March. Investors speculated that the drive to set up home offices with appropriate furnishings helped send the push higher.

As a result, Wayfair believes that it will actually see first-quarter sales growth exceed its previous guidance of 15% to 17%. It's more confident than ever that it'll be able to achieve adjusted pre-tax operating earnings for 2020 as well.

Wayfair also took advantage of the opportunity to raise capital at reasonably favorable terms, aiming to protect its liquidity position. For many who'd feared the worst for the online retailer, the news was welcome.

Harbor from the storm

Shares of Two Harbors finished higher by 30%. The mortgage real estate investment trust gave another update late Friday that confirmed its previous belief that it's in a strong position to weather a difficult period for the mortgage-backed bond market.

Two Harbors has taken dramatic action in its portfolio, selling off nearly all of its mortgage-backed securities that weren't backed by government agencies. Having reduced those positions to "a de minimis level," the mortgage REIT believes that it has eliminated any prospect of large margin calls that could hurt its overall prospects.

The REIT also said that its book value hasn't had a major change since its most recent update in March. Admittedly, that report had indicated Two Harbors' book value had fallen 55% since the end of 2019, but even that would leave book value at around $6.50 per share, more than double today's share price even after the gains.

Bond market conditions still aren't back to normal, and some fear that there's another shoe to drop in the pandemic before it's done. For today, though, shareholders believe Two Harbors has gotten through the worst of it, and they hope that the company can move forward with its successful income-generating business model.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Wayfair. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Two Harbors Investment Corp. Stock Quote
Two Harbors Investment Corp.
TWO
$3.86 (-8.10%) $0.34
Wayfair Inc. Stock Quote
Wayfair Inc.
W
$35.73 (-5.38%) $-2.03
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$29,260.81 (-1.11%) $-329.60
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$3,655.04 (-1.03%) $-38.19
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
^IXIC
$10,867.93 (0.00%) $0.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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