The Dow Jones Industrial Average surged more than 300 points to cross the 21,000 level for the first time ever on Wednesday, roaring back from Tuesday’s minuscule decline that broke a record 12-in-a-row win streak.
The exuberance is so thick in the air it’s hard to breathe, with stock prices melting higher despite political uncertainty, hawkish noises from the Federal Reserve, extended valuations, narrow breadth and extreme sentiment. It’s incredible to see.
In the end, the Dow gained 1.5%, the S&P 500 gained 1.4%, the Nasdaq Composite gained 1.4% and the Russell 2000 gained 1.9%. Treasury bonds weakened, the dollar was mostly stronger, gold lost 0.3% and oil lost 0.3% amid renewed focus on record crude inventories.
Financial stocks — which have been the primary drivers of the post-election uptrend — gained 2.8%. yield-sensitive utilities and REITs were the laggards, down 1% and 0.4%, respectively. Weight Watchers International, Inc. (NYSE:WTW) surged 27.5% on a Q4 earnings beat thanks to a 9.7% jump in subscribers. Guidance was strong. Office Depot Inc (NASDAQ:ODP) soared 16.5% on solid results.
Intel Corporation (NASDAQ:INTC) fell 0.8% after a downgrade from Bernstein analysts on concerns over data-center sales and high valuation. That boosted the March $35 INTC calls recommended to Edge Pro subscribers to a gain of 35%. Palo Alto Networks Inc (NYSE:PANW) fell 24.2% on weak results and guidance.
Best Buy Co Inc (NYSE:BBY) fell 4.5% on a fourth-quarter earnings beat, but unexpected comp-store sales decline and weak guidance. And HD/4k camera system maker Ambarella Inc (NASDAQ:AMBA) fell 4.4% on weak forward guidance on inventory overhand from big customer GoPro Inc (NASDAQ:GPRO).
Stepping back, it’s worth noting that the bulls keep changing the narrative, with the buying apparently being driven by a lack of specifics from President Trump’s admittedly well-received speech to Congress last night (when just 24 hours ago, the warning was that stocks would be disappointed by a lack of specifics). Or that the last time the Dow had a 300 points rally was on Nov. 7, when FBI Director Comey cleared Hillary Clinton for the second time over her email server and thus lifted her electoral victory hopes.
All that seems to matter these days is that stocks, no matter the reason, want to move higher. Even as earnings and GDP growth estimates deteriorate (as shown above). The primary motivator for today’s move is a combination of first-of-the-month inflows as well as intense short covering near the open. This is an air pocket. A sugar high.
Yet headwinds continue to build. And we are massively overdue for a normal pullback with the last 1% loss on the Dow back in October.
The biggest of which is the increasingly hawkish tone from the Federal Reserve which has pushed up futures market odds of a March rate hike above 80%. Fed rate hikes will ultimately end this bull market, as they have ended all bull markets (and economic expansions) in recent history. Key dates to watch include a speech by Federal Reserve Board Chair Janet Yellen on Friday, and in exactly two weeks from today, the March policy decision and updated economic projections.