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

Nidhogg Resources Holding AB (publ)

24/11/2020 19:27

(Adds more analyst comment, updates price)
    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. 
    Brian Levitt, Global Market Strategist at Invesco, advised
clients in a blog not to be overly impressed or concerned by new
records that offer very little information by themselves.
    Dow 20,000 was met with much less fanfare than Dow 10,000
almost 18 years earlier, he noted.
    "Many pundits coined it 'the least loved bull market in
history.' Perhaps, after the tech wreck and the financial
crisis, we were too world-weary to celebrate. And yet maybe the
missing jubilation was as good a sign as any that the advance
would continue."  
    The DJIA on Tuesday rose 1.46%, or 432 points, and traded at
a record high 30,116 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. 
    
     
     Lubricating Tuesday's rally, President Donald Trump gave
the go ahead to start helping the transition of President-elect
Joe Biden, easing political uncertainty that has hung over
markets since the Nov 3 election. A day earlier, the U.S.
federal agency that must sign off on the transition gave Biden
approval to begin the 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 points, 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.  The Russell hit another record on Tuesday
and the S&P is just short of its Nov 9 peak.
    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;))