By Akane Otani
The Dow Jones Industrial Average vaulted above 30000 for the
first time, a remarkable rally that has lifted the stock market to
records even in the midst of a devastating pandemic.
The blue-chip index rose 1.5% to finish at 30046, a roughly 60%
climb from its March nadir. It flirted with the level throughout
the morning, coming just shy of crossing it several times before
breaking through.
Tuesday's advance came after President Trump said the
administration would cooperate with President-elect Joe Biden's
move to the White House, giving investors hope that the country
would be able to have a smooth transition of power. But more
broadly, much of the market's rise in recent months has been
powered by building hopes among investors that scientists are on
the brink of pushing out vaccines effective enough to fight the
novel coronavirus.
News of potential vaccines comes at a key juncture for the U.S.
The country has reported a record number of coronavirus cases in
the past week. The holidays are also approaching, meaning many
Americans will soon be deciding whether to travel and gather
indoors with friends and relatives.
The combination had many investors gearing up for a long and
rocky path ahead for the economy.
Still, vaccine disclosures have come this month from biotech
firm Moderna Inc., pharmaceutical companies Pfizer Inc. and
BioNTech SE, and AstraZeneca PLC and the University of Oxford,
giving money managers a new shot of confidence. All three groups
have developed vaccines that have shown promise in protecting
people against the novel coronavirus.
Although most are still expecting some setbacks, including the
potential for some people to refuse to take the vaccine or
supply-chain issues that might hinder distributing the vaccine,
investors say the overall picture looks better than it did in the
spring.
"We've been a believer in human ingenuity from the outset," said
Mike Stritch, chief investment officer and national head of
investments for BMO Wealth Management.
"Everyone is betting on some progress this year, and that's our
base case, too," he said, adding that his firm has this year mostly
concentrated clients' portfolios in shares of large U.S. companies
while trimming positions in riskier emerging-market debt and
noninvestment grade holdings.
The market's comeback from its March low seemed implausible at
first. Stocks climbed even as lockdowns aimed at slowing the
coronavirus' spread forced employers to lay off millions of
workers, decimating industries from hospitality to retail to
entertainment.
More recently, though, the U.S. economy has shown signs of
revival. As some of the most hard-hit states in the early stages of
the pandemic ventured out of their lockdowns, a measure of
manufacturing and services activity rose for a sixth straight
month, data firm IHS Markit said in November. Home sales surged to
a new 14-year high in September, buoyed by rock-bottom mortgage
rates that drew in buyers. And retail sales data have shown
Americans boosting their spending on vehicles, clothing and other
goods, an encouraging sign, although overall expenditures have
remained below pre-pandemic levels.
The economy isn't out of the woods yet. And the U.S. isn't clear
of the pandemic, either. In the coming months, the U.S. faces
multiple threats as millions of students return home from college,
families gather for the holidays and flu season progresses.
It isn't yet known "how long we will still have to fight with
the virus, how serious the overall economic consequences in the
longer run will be, what kind of vaccines could be made available
to a wide public, and by when," said Tatjana Puhan, deputy chief
investment officer at TOBAM.
Nevertheless, investors betting on stocks' comeback say the
market's surge is indicative of several things: faith that
front-runners in the race to develop coronavirus vaccines are
closer to a final product, confidence that the emergency measures
the Federal Reserve put in place this year have stabilized the
financial system, and ultimately, hope that the economy will be
able to continue its long recovery. President-elect Joe Biden also
named a Covid-19 advisory board this month and pledged to spare no
effort to stop the pandemic.
The market's gains haven't been even. Even with its recent
advances, the Dow is up just 5.3% for the year, compared with the
S&P 500, which is up 12.5%, and the tech-heavy Nasdaq
Composite, which is up 34%.
The reason for the disparity: technology stocks.
Much of the market's rebound since March has been powered by
shares of fast-growing companies. Amazon.com Inc., Apple Inc. and
Netflix Inc. are each up more than 45% for the year.
The gap between the market's haves and have-nots points to just
how split the economic recovery from the pandemic has been,
investors said.
Many technology firms have enjoyed robust growth throughout a
turbulent period for the broader economy, with Amazon reporting
record sales for the third quarter thanks to a surge in online
shopping and Alphabet posting a rise in digital advertising revenue
for the July-through-September period.
In contrast, companies in industries that have been hit hard by
the losses stemming from the pandemic -- such as the airline
sector, bricks-and-mortar retail and hospitality -- have, even with
Monday's rally, continued to lag behind the market. American
Airlines Inc., for instance, is down 48% for the year, while Macy's
Inc. has fallen 36%.
"The indexes on the whole are recovering nicely, but within the
underlying sectors, there's still a significant dispersion between
winners and losers," said Jim Baird, chief investment officer of
Plante Moran Financial Advisors.
Mr. Baird said his firm, wary of the potential for a pullback in
growth stocks, has begun to tilt more of its investments toward
areas of the market that haven't led the rally, such as small-caps,
international stocks and value.
"There's that risk of investors piling into a shortlist of names
at almost any price and ignoring the other stocks, other
businesses," Mr. Baird said.
Many investors have been drawn to faster-growing technology
companies because they see few other alternatives in an economic
environment characterized by low growth, interest rates and
inflation, said Brian Levitt, global market strategist at Invesco.
The opposite economic scenario typically benefits value stocks.
That group often includes retail, energy and financial stocks, many
of which trade at low valuations compared with their earnings.
"For investors to look to start thinking about other parts of
markets, you need a sustained recovery," Mr. Levitt said. Right
now, the economy is still in its early stages of rebuilding, he
added.
What could derail the recovery?
Many of the fears that investors had in past years, such as
U.S.-China trade tensions or a central-bank policy misstep, seem to
have taken a back seat to the pandemic. For now, some investors and
analysts say their primary concern is that the coronavirus spreads
so much over the winter and spring that states are forced to shut
down their economies again, as has been the case throughout parts
of Europe.
Even that risk is difficult to assess, though.
"Look at what we've gone through over the last six months. The
news just changes so rapidly," Mr. Baird said, adding that he has
generally advised his clients to stick to making longer-term
investment decisions, instead of trying to trade off the latest
headlines.
What brings comfort to many is the general sense that, compared
with March, things have improved.
"Hopefully we've learned a thing or two," said Invesco's Mr.
Levitt. "This recovery is going to happen with some fits and
starts, but ultimately, I think we're setting the stage for what
will be the start of a long cycle."
Write to Akane Otani at akane.otani@wsj.com
(END) Dow Jones Newswires
November 24, 2020 16:42 ET (21:42 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.