By Gunjan Banerji, Akane Otani and Michael Wursthorn
The U.S. stock boom has its roots in tactics that fund managers,
small savers and Robinhood traders alike have applied over the past
Don't hide from markets by hoarding cash.
Keep hold of your investments, and returns will follow.
When there's a crisis, buy.
The Dow Jones Industrial Average rose above 30000 on Tuesday,
extending an eight-month rebound that has taken many analysts by
surprise. The run has put the Dow up more than 60% from its March
low, when the U.S. Federal Reserve ended a panic that wiped out
trillions of dollars in investments by outlining a plan to counter
the pandemic's economic stress.
The market appears locked into a self-perpetuating upward cycle,
defying the pandemic and accompanying economic woes. Some
pessimists say today's gains will inevitably lower returns
tomorrow. But low interest rates mean investors big and small can't
expect to make much money in less-risky investments like bonds. So
they are betting that the market's momentum will continue, whether
passively through index funds or actively with a buy-on-dips
"The real learning lesson over the last decade is you just put
your head down, you don't try to time the market, you take
advantage of weakness," said Dev Kantesaria, a managing partner at
Valley Forge Capital Management, which oversees around $1.1 billion
in assets. Over the past 13 years, he typically held about a fifth
of his firm's holdings in cash. At the end of October, that figure
was close to zero.
This strategy paid off handsomely in the past for investors who
added to shareholdings around the March 2009 financial-crisis nadir
and during recession scares in 2011, 2015-2016 and 2018.
The just-buy-it strategy is working again for investors in
popular stocks such as electric-car maker Tesla Inc. and vaccine
manufacturer Moderna Inc. Tesla shares are up more than sixfold
this year, while Moderna shares have roughly quintupled.
Trading volume has surged to new highs on options exchanges,
where many individual investors congregate. Investors have opened
millions of new brokerage accounts at Charles Schwab Corp., TD
Ameritrade Holding Corp., Robinhood Markets Inc. and others
following the introduction last year of no-commission trading.
Stock-discussion threads on websites such as Reddit and Twitter are
John Bianco, a 55-year-old real-estate attorney who lives in
Massapequa, N.Y., said he has made more than 300 trades over the
past several months, surpassing his few dozen or so in previous
years. When lockdowns all but closed his law practice, he bought a
Peloton bike and began watching CNBC in the mornings while
His purchases included shares of Tesla, which he said have more
than tripled since, and cybersecurity firm CrowdStrike Holdings
Inc., which have more than doubled. He bought FedEx Corp., DocuSign
Inc. and Square Inc., all big gainers. "In a year where I have very
little income, I've been lucky enough to increase the size of my
portfolio," said Mr. Bianco, who said he is up about 47% this year
atop a more-than-20% gain in 2019. "It's crazy. It's a stock market
I never thought I'd see."
Underpinning the gains is the math of slow-growing Western
economies. This year's interest-rate collapse, driven partly by the
Fed's efforts to keep money flowing through the economy, has helped
buoy stocks by reducing bonds' attractiveness. Corporate earnings
are expected to rebound next year, and the U.S. economy has
steadily improved since spring, though it remains far from where it
started the year.
Some traders say stocks also benefit from fears that federal and
central-bank stimulus will eventually result in a damaging bout of
inflation, though there are no signs of such an upsurge. Many
analysts who were long skeptical of stocks' prospects now believe
that they are likely to continue rising.
Bears make the case that stocks cannot continue double-digit
percentage gains without borrowing from future growth, as they
effectively did in the run-up to the market peak in 2000. Investors
who bought and held stocks in the months around the March 2000
Nasdaq record suffered a lost decade of low and, at times, negative
returns. Others warn about greater volatility in months and years
ahead, as market momentum dissipates.
Though economic activity has generally recovered more quickly
than many analysts anticipated, and employment has risen
significantly in the months since the spring lockdowns ended,
joblessness remained 6.9% last month. Before the pandemic, the last
time the unemployment rate was that high was at the end of
The market's resilience is striking to many portfolio managers
because U.S. Covid-19 caseloads have soared to records, and some
jurisdictions are again taking steps to limit opening hours for
bars, restaurants and other businesses. Some analysts fear a replay
of February, when new highs came just days before the economic
slowdown sent the Dow and S&P into free fall.
"Recovering from the pandemic," said Solita Marcelli, chief
investment officer for the Americas for UBS Global Wealth
Management, "will be the key driver of market returns in 2021."
Investors plowed $32.5 billion into U.S. stock funds over the
week ended Nov. 11, the most since early 2018 and the
second-highest weekly total in data from EPFR Global going back to
2000. Institutional investors surveyed by Bank of America were
recently the most bullish since 2018.
Optimism among individual investors was at its highest in almost
three years in November and has remained elevated, according to
recent American Association of Individual Investors surveys. Their
trading activity has doubled from last year and now accounts for
about a fifth of the total stock-market activity most days and a
quarter of trades during heavy-volume sessions.
Michael Da Silva, a 24-year-old living in Toronto, said volatile
days have provided opportunities to buy, including shares of tech
giants like Amazon.com Inc. and Facebook Inc. He recently held
shares of tech companies along with a special-purpose acquisition
company -- known as a "blank-check company" -- that makes its own
investments. He said his portfolio swelled this year and the
returns helped him make payments on a gold two-door Toyota.
"I was buying the dip, or the crash," said Mr. Da Silva, who
shares his experiences on TikTok to more than 60,000 followers and
the gaming platform Discord, where he hosts a community of traders,
"and I was right."
This year's market crash and ascent have happened at an alarming
and volatile pace. Stocks fell into a bear market -- a drop of at
least 20% -- at the fastest pace in history. The Dow's recovery to
a new high took just 193 trading sessions, compared with an average
of more than five years in prior drops. The Dow is up more than 60%
from its nadir in March; over the past 10 years, it has nearly
The Dow has jumped up or down at least 3% on more days this year
than in any stretch since 2008, according to Dow Jones Market
Anchoring the market is the belief the Fed will always step in,
especially after its bigger-than-ever effort earlier this year. The
postcrisis era of ultralow interest rates looks set to continue for
years, with central banks taking drastic steps to support economies
through the pandemic. Low rates have made lower-risk investment
returns generally harder to come by.
Expectations that interest rates will stay lower for longer have
challenged conventional wisdom that a balanced portfolio should be
60% stocks and 40% bonds. "To get a 6% expected return moving
forward, you may have to hold more stocks than ever before," said
Sébastien Page, head of T. Rowe Price's global-multi asset
Sam Pemberton, 71, a retired lawyer in Austin, Texas, said
despite his age, he buys only stocks and mutual funds. "I don't
believe in bonds," he said. "It's a foolish adventure for most
Over the past decade, he revamped his stock portfolio, replacing
shares of old-economy companies such as Altria Group Inc., Philip
Morris International Inc. and Colgate-Palmolive Co. with
fast-growing tech stocks like Microsoft Corp., Google parent
Alphabet Inc. and Apple Inc. Last year, he said, he beat the
S&P 500 by a small margin, and he has exceeded his goal of
doubling his money every seven years.
He said he's up about 16% this year. He moved a third of his
seven-figure portfolio to cash ahead of the stock market's swoon
and re-entered soon after the Fed took action, buying many of the
same tech stocks he has long held. "I guess I have a high risk
tolerance compared with most people," he said. "But I'm confident
in the long-term future of the economy and stock investing."
Some prominent Wall Street figures, including billionaire Leon
Cooperman, say central banks' actions have overheated stocks,
raising concerns around whether the market's climb can continue
unabated. "The Fed is driving the bus, driving everyone further out
along the risk curve," Mr. Cooperman said in an interview. "We've
borrowed from the future. But when the party's over, who pays the
bill? Someone pays for that bill."
Concerns remain that the market is swayed by big tech stocks,
potentially spurring volatility if the group's performance
disappoints. The five largest S&P 500 stocks -- Apple,
Microsoft, Amazon, Alphabet, Facebook -- recently accounted for
almost a quarter of the index's market capitalization, close to a
record, according to Goldman Sachs.
Many investors worry about a period of sustained low growth and
low returns, like the one that gripped Japan. The Nikkei Stock
Average hit a record in 1989 -- just shy of a highly anticipated
40,000-point mark -- and hasn't reclaimed those highs, closing at
26,165.59 on Tuesday.
There are important contrasts between Japan's position then and
America's now, including major structural differences in the
economies, America's younger population and the Fed's rapid and
aggressive response to the latest downturn. Yet some asset managers
say they are bracing for shrinking investment returns ahead.
"Currently, we are advising all our clients to invest as
differently as they can from the conventional 60% stock/40% bond
mix, just as we were advising them in 1999," Peter Chiappinelli of
investment manager GMO, which oversees about $60 billion in assets,
wrote this month pointing to stock valuations that appear overly
stretched and Treasurys that have grown expensive, appearing
unlikely to serve as a hedge to stocks.
But after a long stretch of higher risks -- including a global
trade war and election uncertainty -- the outlook is growing
brighter. The election has passed, and a Covid-19 vaccine is likely
Goldman sees the S&P 500 potentially ending next year at
4300, supported by a bounceback in earnings and economic activity.
JPMorgan Chase & Co. forecasts the S&P 500 will jump to
4000 by early next year, an 11.8% advance from Monday's close, with
a path to around 4500 by the end of 2021.
The prospect of congressional gridlock alongside Democrat Joe
Biden in the White House makes it less likely big overhauls on
corporate taxes and regulations will pass, resulting in what a team
of JPMorgan strategists led by Dubravko Lakos-Bujas called "market
nirvana" in a November note to clients.
"The equity market," they wrote, "is facing one of the best
backdrops for sustained gains in years."
Write to Gunjan Banerji at Gunjan.Banerji@wsj.com, Akane Otani
at firstname.lastname@example.org and Michael Wursthorn at
(END) Dow Jones Newswires
November 24, 2020 14:33 ET (19:33 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.