Dow's Rise to 30000 Heralds a Broader Stock Rally
By: Amrith Ramkumar (WSJ)
S E E D E D C O N T E N T
The Dow Jones Industrial Average’s ascent to 30000 Tuesday signals more companies are beginning to participate in the new bull market, offering hope to investors who have long waited for the rally to widen.
Apple Inc. and Microsoft Corp. were two of the biggest contributors to the blue-chip index’s latest 10,000-point milestone, a journey that took nearly four years. But it was a November rally in lagging cyclical stocks including Boeing Co. , Honeywell International Inc. and Goldman Sachs Group Inc. that helped push the 30-stock index over the hump.
Upbeat trial results for coronavirus vaccines developed by Moderna Inc. and the duos of Pfizer Inc. and BioNTech SE and AstraZeneca AZN -2.07% PLC and the University of Oxford are reordering the market’s winners and losers, prompting wagers that the U.S. economy will return to normal more quickly than anticipated.
That would be a boon for the Dow, which is oriented toward shares of banks and manufacturers that are particularly sensitive to the economy’s trajectory. The index has trailed the S&P 500 and Nasdaq Composite by a historic margin in 2020 and is up 5.3% in 2020. It peaked at 29551 in February, dropped as low as 18592 in March when the economy shut down, then recovered its losses more slowly than its peers.
That is partly because the Dow has missed out on much of this year’s boom in technology stocks . Investors have piled into shares of internet giants such as Amazon.com Inc., Facebook Inc., Google parent Alphabet Inc. and other tech stocks that aren’t included in the index, betting they would emerge as winners of the stay-at-home trends.
The rallies in those stocks have spurred double-digit percentage gains in the S&P 500 and Nasdaq Composite this year. The advances have led some analysts to argue there is a seismic disconnect between the stock market, which continues to set new highs, and the economy, which is still recovering from the pandemic .
Many analysts also have remained skeptical of the stock-market rally because the cyclical sectors hadn’t participated, until recently. The market’s reliance on a handful of internet stocks concerns these investors who say that a broader climb with more companies hitting new highs will lead to a steadier advance.
The recent Dow rally therefore sends a rosy signal to those who contend that major indexes perform best when the economy is exiting a recession and growth-sensitive companies such as banks lead the way. Boeing, Honeywell and Goldman have each risen at least 25% this month, powering the Dow to new records.
“A very important 2021 narrative is going to be recovery and reflation,” said Yousef Abbasi, global market strategist at StoneX Group, referring to economic expansion that is aided by stimulus programs. “It tees up a potential rotation away from a sector that has carried this market.”
In another sign investors are more optimistic about the economic outlook, the yield on the benchmark 10-year U.S. Treasury note has recently hovered around 0.9%, up from a record low of 0.501% hit earlier in the year. Yields tend to climb when investors are anticipating stronger growth and inflation. Higher yields can help bank stocks, lifting the gap between what they pay on deposits and charge on loans.
The recent gains in cyclical stocks will test whether a new group of companies can lead major indexes higher. For much of the past decade, technology has suffered brief periods of underperformance, only for their consistent growth in a world with ultralow interest rates to attract investors once again. Low rates limit returns from holding cash and bonds, making shares of companies that can rapidly grow earnings more appealing.
Apple itself added more than 2,500 points to the Dow during its march from 20000 to 30000, highlighting the iPhone maker’s key role in the global economy. UnitedHealth Group Inc., Microsoft and Home Depot Inc. are next on the list of large contributors to the 10,000-point milestone, underscoring how investors have favored stocks tied to technology, health care and in-home activities lately.
“Technology is a defensive sector now, which is crazy,” said Gene Goldman, chief investment officer at Cetera Investment Management.
In another sign of technology’s importance, business-software company Salesforce.com Inc. was recently added to the Dow , in part because Apple executed a stock split that lowered its share price and its weighing in the index. The Dow gives companies with higher stock prices more influence. As Salesforce joined the index, Exxon Mobil Corp. was one of the companies removed.
Apple first overtook Exxon as the world’s most valuable company in 2011 and joined the Dow about 3½ years later. It then became the first U.S. company to join the trillion-dollar club, with its market value passing $1 trillion in August 2018 and $2 trillion in August 2020 .
Editors at The Wall Street Journal participate in selecting the stocks in the Dow, though the index itself is now part of S&P Global Inc.
While many analysts are hoping for a broader rally in the future, some remain confident that themes like remote work and cloud computing will persist beyond the pandemic, giving tech stocks an edge.
“Even when we go back to some sort of new normal, I don’t think any of these trends will change,” said Michael Lippert, who manages the Baron Capital Opportunity Fund, which counts Microsoft, Alphabet and Amazon among its largest holdings.
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I know that the Market high's & lows are not easily explained, but I think it can be argued that the prospect of a Vaccine only weeks away has had a positive effect on investors.
we already had a vaccine bump, and another one, last week. this bump was about the transition starting and the glimmer of hope that POS/POTUS has shown a sign of accepting reality and taking the first tiny step of working his way thru being the loser.
Oh is that what it was? In other words you think investors are happy about the idea of high taxes & regulations on the horizon? I doubt it.
those investors knew what was possibly coming down the pike before biden won. why wouldn't the stock market go the other direction when the reality of the transition start was being announced?
Very simple - the near certainty of a vaccine within weeks means that small business will get a new lease on life. New businesses will emerge to replace those destroyed by the virus. People will be getting back to work and spending again!
Expect more bumps on the vaccine!
The stock market is tied directly to investors view of market futures. If they see positive changes coming in the future, they invest. I don't think it's any wonder that the stock market did well after both the vaccines were announced and Biden was elected giving the high likelihood of future market profit which prompted this boom. Political stability and normalcy for America in 2021 has obviously made investors very happy.
Yup, there is no doubt about that.
I don't think investors are excited about any democrat being in the White House. For Joe Biden, that is still a bit less than 2 months away.
Well that statement indicates you could have stopped at the first three words. Democrats and Republicans want the US to have a healthy and wealthy economy, so the false belief that Democrats are bad for the economy is just pure partisan bullshit. What investors value is stability and predictability and that's why they are dumping money into the stock market as they see the future of the US under a Biden administration as far more stable and predictable.
So where was the bump to the stock market after Obama was elected?
Also, the left gave credit to Obama for the increase after Trump was elected. Sorry, you can't have your cake and eat it too. If Obama was responsible for Trump's good market; then Trump is responsible for the good market Biden is getting.
Until Biden states what exactly his economic policies are (like Trump did before he was elected); he gets no credit for any market increase. Let's wait until he decides to shut the economy down until Covid 19 is over; or is a hypocrite and keeps it open with band aid EO's that do nothing. Also, if he uses EO's to increase EPA regulations on energy producers and manufacturing; rejoins the BS Kyoto and other climate Accords; and caves to the left about trying to force through higher corporate taxes. All of those things will have vastly negative affects on the market- no blaming Trump for Biden's follies.
Not that hard to explain. 0-.25% Fed interest rate has more to do with it than anything. With free money flowing and the rest of the world looking even more problematic than the U.S. - U.S. stocks are still an easy investment.
Bond returns are low and longer term volatility is looking high.
Even Mom and Pop aren't putting it in a savings anymore at 0.6% APY while inflation is averaging 2%.
Where are you going to put money internationally?
The BRIC countries were hot for a while - then Russia got increasingly antagonistic, Brazil and India got authoritarian leadership and have been hard hit by Covid. China is in a trade war with us - has a more nascent market - and investment in a socialist country where you always have to worry about government seizure of assets proposes higher risk for long term investors.
Europe just finished Brexit and the future of the Eurozone is a bit dicey.
Real estate is looking over valued and set for a correction.
Borrowing money at record low interest and putting it in the U.S. market which has been historically the most stable is just simple math - which is why we see the market becoming increasingly divorced from the actual U.S. economy.
Breaking, Biden had nothing to damn well do with it.
Slowest economic recovery from recession ever under the Obama Administration; which Biden played a key roll in. Get ready for more of the same.
Wait until he announces his true plans; and see how the market reacts after he takes office and starts trying to enact them.
In the mean time- just remember that Trump had the market going up before he took office- he made sure everyone knew exactly what his plans were- ending Obama EO environmental regulations against energy producers; ending US involvement in unratified Environmental Treaties; and preparing to lower the corporate tax rate. Biden has none of that, all of his plans will cause the market to go down.
Then you will of course be blaming Trump for Biden's piss poor economy and market.
To all my friends here as well as Michael Flynn and his family:
Have A Happy Thanksgiving!