Analysis: Dow cracks 30,000, a psychological boost during a pandemic

Nidhogg Resources Holding AB (publ)

24/11/2020 17:13

By Alden Bentley
    Nov 24 (Reuters) - The Dow Jones Industrial Average clocked
its fastest 10,000 point run up to cross 30,000 for the first
time on Tuesday, giving the stock market a psychological boost
at a time when  the coronavirus pandemic has damaged the economy
and left millions unemployed. 
    Investor sentiment has been lifted by encouraging news about
coming coronavirus vaccines and improving prospects for a smooth
White House transition. But the milestone is less significant to
professional investors. 
    At 30,000 points the Dow could lure in small investors still
on the sidelines who are now eager to share in the market
exuberance. But market watchers say they are less impressed than
they were with the 20,000 mark reached in January 2017, and
technically speaking it means little beyond making a headline
that can turn heads. 
    The DJIA on Tuesday surged 1.45%, or 429 points, to trade at
a record high 30,015 points, not quite four years after reaching
the 20,000 mark on Jan 25, 2017. Catalysts included recent signs
that a working COVID-19 vaccine could be available before the
end of the year, based on promising trial results released by
Pfizer  PFE.N , Moderna  MRNA.O  and AstraZeneca  AZN.L .  
    The index eclipsed last Monday's high just under the
threshold reached after Moderna  MRNA.O  said its COVID-19
vaccine had a 94.5% effective rate. 
    
     
    The rally was lubricated by news that President Donald Trump
had given the go ahead to start helping the transition of
President-elect Joe Biden started to alleviate the political
uncertainty hanging over markets since the Nov 3 election. 
    The U.S. federal agency that must sign off on the
presidential transition told Biden on Monday that he can
formally begin the hand-over process.  urn:newsml:reuters.com:*:nL1N2I91XS
    As the 124-year old DJIA advances, each 10,000 milestone
represents a smaller proportional gain. The index, which dates
to 1896, first touched 10,000 in March 1999.
    "Percentage wise, 20 to 30 is only 50%. It's a nice number
to look at, and certainly will attract some retail folks, to say
'hey, the market's moving'," said Joe Saluzzi, co-manager of
trading at Themis Trading in Chatham, New Jersey. "With that
said I think this rally should be exhausting itself." 
    U.S. economic activity is reeling from the damage inflicted
by lockdowns, although it has recovered some in recent months,
and employment is at levels last seen in 2015. Trillions of
dollars of U.S. central bank and government stimulus has helped
power Wall Street's main indexes back to record highs.
 urn:newsml:reuters.com:*:nL1N2I310P
    Two weeks ago the Dow spiked 1,600 points, ending up more
than 800, when Pfizer first revealed the high effectiveness and
near readiness of its vaccine  PFE.N , which launched the
benchmark S&P 500 and Russell 2000 small cap index to their own
records last week.  The Russell hit another record on Tuesday.
    For the average person, the Dow is a well recognized proxy
for the overall U.S. stock market. But to most investors its
relevance, with only 30 large cap stocks, is not what it was.
    The total Dow market capitalization is $9.2 trillion and a
piffling $28.2 billion is indexed to it, according to S&P Dow
Jones Indices. 
    The S&P, with 505 constituents, has a market cap of almost
$32 trillion. It is far more important as a barometer of the
overall market, with $4.6 trillion indexed to it.   
    JJ Kinehan, chief market strategist at TD Ameritrade in
Chicago, said the 30,000 level has psychological importance, but
should be seen in the context of Wall Street's overall rally,
led by mega cap tech stocks and companies that benefited from 
people shopping, ordering in, video chatting and exercising at
home since the pandemic started.
    "The big deal that's happening now is the fact that the
stocks that have been so loved since March, the Zooms  ZM.O  and
Peletons  PTON.O  of world, and so on, that they're looking for
new areas to put their money and they are putting it in some of
the stocks that have been unloved over the past few months," he
said, pointing to the recent rally in beaten down energy stocks
and financials.

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Dow Jones Industrial Average hits 30,000 points    https://tmsnrt.rs/3frR42S
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 (Reporting by Alden Bentley in New York and Noel Randewich in
San Francisco; Editing by David Gregorio)
 ((alden. bentley@thomsonreuters.com; 646-223-6041;))