On Tuesday, stocks rallied again, and the Dow Jones Industrial Average set another record high while falling short of the psychologically important barrier at 20,000. The Dow has risen to within 50 points of that mark several times since the presidential election and yesterday came to within 12 points of it before falling away.
Tuesday’s advance was encouraged by President-elect Donald Trump’s stated policies of growth with inflation while cutting many regulations that have restricted profits, especially in the financial sector. It was the second straight advance for the broad market.
Both financials and industrials are expected to be prime beneficiaries of the new policies, thus the Dow, which is heavy in both, has moved higher with that tailwind.
Yesterday the DJIA gained 0.5%, the S&P 500 rose 0.4%, the Nasdaq added 0.5%, and the Russell 2000 jumped 0.9%. Caterpillar Inc. (NYSE:CAT) and Goldman Sachs Group Inc (NYSE:GS) helped push the Dow to its new record high. But bonds and bond-related investments have been under pressure while yields have been sent higher. The yield on the benchmark 10-year U.S. Treasury note rose to 2.6%, up from 2.5% on Monday. As bond prices fall, yields rise.
Biotechnology stocks recovered some of their recent losses. The iShares Nasdaq Biotechnology Index (ETF) (NASDAQ:IBB) rose 0.7%. But healthcare fell 0.1%.
At the close the Dow Jones Industrial Average gained 92 points at 19,975, the S&P 500 gained 8 to close at 2,271, the Nasdaq rose 27 points at 5,484, and the Russell 2000 closed at 1,384 for a gain of 12 points. The NYSE’s primary exchange traded almost 800 million shares with total volume of 3.3 billion shares. The Nasdaq crossed 1.7 billion shares. On the Big Board, advancers outpaced decliners by 1.8-to-1, and on the Nasdaq advancers led by 1.9-to-1. NYSE blocks fell slightly to 6,145 compared to Monday at 6,180.
Yesterday we examined the recent advance of the iShares Russell 2000 Index (ETF) (NYSEARCA:IWM), concluding that recent price action “puts the Russell 2000 ETF close to signaling that another new high is pending.” That new high didn’t occur yesterday despite the index’s lead over all others. The SPDR S&P Midcap 400 ETF (NYSEARCA:MDY), rose 0.59% yesterday, opening a small gap of 0.18 points, which could close today given the light trading volume as we approach Christmas.
Conclusion: “Are we following last year’s pattern of a strong December and a weak January?” That was the question posed by several analysts on CNBC yesterday.
My answer to that question is “So what?” If we have another year like this, the axiom “So goes January, so goes the market” will become obsolete. The DJIA is up over 14% this year, with the S&P 500 rising 11% and the Nasdaq up 9.5%. In January the Dow fell over 8% which delighted the bears. Unfortunately it also scared many potential bulls who are still hanging around the fence of restraint.
True, we are slightly overpriced and due for a mild round of profit-taking. However, that is not likely to occur before the end of the year. Bring on January, since earnings have finally become the focus of institutional investors with Fed policy now a distant second, the opportunity for a strong 2017 is very real.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
