U.S. stocks rallied on Tuesday with the Dow Jones Industrial Average hitting the never-before-seen 30,000 level.
This came after the Trump administration began the transition process for President-elect Joe Biden. The move higher also comes after Biden named Cabinet picks, including a nomination for former Federal Reserve Chair Janet Yellen to be Treasury secretary.
Many investors view Yellen as a market-friendly pick, considering that she oversaw the U.S. central bank during a long economic expansion with historically low interest rates. She’s also likely to push for further fiscal stimulus.
Three market watchers weigh in.
Jim Cramer, host of CNBC’s “Mad Money,” is watching the speculative part of the market.
“I think that there’s two parts of the market. There’s the cyclical market, which is doing very, very well. And then there’s the speculative part of the market, which is insane. I mean, we’ve got a lot of stocks that everyone must think are the next Teslas, and you see those go up so much that you begin to say, ‘Well, wait a second, can that continue forever?’ And those are the stocks that I’m really watching because they are the so-called Robinhood stocks. There’s a lot of other people who buy these now, but everything they buy goes higher, and so that’s what I’m focused on is can that continue, because that speculation is usually met with some sort of big sell-off. Hasn’t happened yet, though.”
Paul Hickey, co-founder at Bespoke Investment Group, says the big market movers for further upside are still unknown.
“We’re on the same level we were over two months ago in the S&P 500. So we’ve really been consolidating what was a really massive rally off spring lows. And in the last week or so we’ve been consolidating what was really a strong rally in the first half of the month, so it’s like, you know, sprinting a four-minute mile and then just, you’re going to be tired, you’re going to have to want to catch your breath and regroup and build up a head of steam. So I think, you know, there are some concerns with going into the winter with rising Covid cases. But overall, we’re still positive on the market. We think there’s more positives than negatives. And this whole idea of what’s the upside catalyst going to be to get us to higher levels come year-end, nobody ever knows what the outside catalyst is. If you’d asked someone on Oct. 30 were we going to have an 11% month in November no one would have said that, so it’s always easy in retrospect to find what the outside catalyst was, but, you know, looking ahead, no one ever knows what the outside catalyst is going to be.”
Mona Mahajan, senior U.S. investment strategist at Allianz Global Investors, sees a two-speed market.
“Cyclicals have had a really nice run since really the beginning of this quarter. And if you look at the S&P broadly it’s up 6%, but the cyclical parts of the market, like energy, like financials, like industrials, up 13% to 19%-plus. So, clearly the advent of the vaccines, perhaps even potential Biden victory combined with a split Congress, those are some of the ingredients in place for the start of a value rotation. But when we look more broadly, perhaps over a 10-year period, growth versus value, we could make a case that we’re still in just early innings of this cyclical rotation. I think really what markets are looking forward to are perhaps the second half of next year when consumer behavior actually returns more toward pre-pandemic levels. According to leaders in Operation Warp Speed, we will be getting 20 million vaccine doses in December, 30 million thereafter every month, and perhaps you’re at a better point in the next year, by mid next year. And so I do think if growth continues to accelerate next year, not only in the U.S. but globally, if rates continue to remain low, if you do get some stimulus into the system, that’s a pretty good backdrop for risk assets and perhaps a continuation of the cyclical rally.”
