The Dow Jones Industrial Average topped 30,000 for the first time and investors piled into risk assets as a series of market-friendly developments unleashed animal spirits on Wall Street.
The S&P 500 Index hit a record, spurred by the formal start of President-elect Joe Biden’s transition, news that all but removed the threat of a contested transfer of power. Investors also woke up with a clear sense of what Biden’s Treasury Department will have in policy preferences after he nominated Janet Yellen to the post. A third promising vaccine candidate added to the euphoria, boosting bets that the economy can soar next year.
The rotation into risk assets was widespread. Small caps in the Russell 2000 added another 1.9%, pushing its November rally past 20%. Tesla Inc. tacked on another 6.4% and is now worth US$500 billion ($671.42 billion). Carnival Corp. jumped 11%, Planet Fitness Inc. rose 8% and MGM Resorts International added 9%. Four stocks rose for every one that fell in the S&P 500, while only three Dow companies dropped. Bitcoin rose to a three-year high, topping US$19,000 as it closed in on a record.
The record runs come in the face of more troubling news on the virus front, with cases rising and more states enacting restrictions ahead of the Thanksgiving holiday. Wednesday will also bring a flood of economic indicators, from jobless claims to readings on consumer confidence and personal income. Trading volumes have been elevated in what is normally a calm week. More than 12 billion shares changed hands yesterday, up 75% from the Monday before last year’s holiday.
“There’s nothing else to buy. People have this excess cash and they’re buying into the market and they’re chasing it,” Gene Goldman, chief investment officer at Cetera Financial Group, said. “People are ignoring the short term and just jumping in and buying. All the short terms news is being ignored for long term optimism.”
Energy companies in the S&P 500 surged 4% on the back of oil’s advance past US$45 for the first time since March. The dollar weakened versus major peers and Treasuries slipped. Gold fell toward US$1,800 an ounce.
As the S&P 500 pushes its November surge past 11%, a growing chorus is saying the rally can persist. Even after the latest advance, four of the 11 S&P 500 groups remain at least 8% below when the index set a record on Feb. 19. Expectation is mounting that as investors grow confident the vaccine will spark an economic boom, cash will continue flooding into the likes of banks, utilities and energy companies that have underperformed.
“Everybody’s just ecstatic with the vaccine news,” said Jerry Braakman, chief investment officer of First American Trust, in Santa Ana, California, which manages around US$2 billion. “We had to slug through the election results, there’s a sense of relief that we didn’t decay into anarchy. That was definitely holding back the economy. We know how well stock markets do with recovery and its vision ahead.”
The rotation has been on display all month. Energy shares have surged almost 40%, while financial firms have rallied about 20%. Treasury yields have advanced and gold has stumbled.
“Even though we’ve seen this pretty sharp rotation into cyclical stocks, we think this could go on for much longer given how unbalanced many investors’ portfolios are when,” said Bill Callahan, investment strategist at Schroders. “With the vaccine announcement it really doesn’t matter if the vaccine is distributed in the second quarter or third quarter next year, there is a light at the end of the tunnel.”
Here are some key events coming up:
- Minutes of the most recent Federal Open Market Committee meeting are due Wednesday.
- U.S. jobless claims, GDP and personal spending data come Wednesday.
- U.K. expected on Wednesday to deliver the government’s spending plans for next year.
- Thursday sees a policy decision and briefing from the Bank of Korea.
- U.S. celebrates the Thanksgiving holiday on Thursday.
- The week ends with Black Friday, the traditional start of the U.S. holiday shopping season.
These are the main moves in markets:
Stocks
- The S&P 500 Index rose 1.6% as of 4 p.m. New York time.
- The Dow average added 1.5% to 30,045.
- The Stoxx Europe 600 Index rose 0.9%.
- The MSCI Asia Pacific Index rose 0.9%.
- The MSCI Emerging Market Index was little changed.
Currencies
- The Bloomberg Dollar Spot Index fell 0.4%.
- The euro climbed 0.4% to $1.1890.
- The British pound gained 0.3% to US$1.3358.
- The Japanese yen was little changed at 104.54 per dollar.
Bonds
- The yield on 10-year Treasuries jumped two basis points to 0.88%.
- The yield on two-year Treasuries increased less than one basis point to 0.16%.
- Germany’s 10-year yield gained three basis points to -0.56%.
- Japan’s 10-year yield climbed one basis point to 0.025%.
Commodities
- West Texas Intermediate crude surged 4.2% to US$44.84 a barrel.
- Brent crude climbed 3.9% to US$47.87 a barrel.
- Gold futures weakened 1.8% to US$1,811 an ounce.
