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Dow Surges to New Zenith, But Market’s New Normal Is Anything But Exciting

Last Updated September 23, 2020 1:15 PM
Josiah Wilmoth
Last Updated September 23, 2020 1:15 PM
  • The Dow, S&P 500, and Nasdaq all spiked to new all-time highs on Monday.
  • Renewed trade war optimism helped push the Dow over the line.
  • However, Morgan Stanley warns that the stock market’s party is almost over.

The Dow surged into uncharted territory on Monday after a November trade deal reemerged as a legitimate possibility. But as Wall Street prepares to close the book on a phenomenal decade, analysts have begun to warn that the stock market’s next chapter will be far less exciting.

Dow Seeks to Close at New All-Time High

Wall Street’s major indices raced higher as trading opened this morning. The Dow Jones Industrial Average quickly jumped to a new all-time high, joining its peers in record territory. At last check, the Dow stood at 27,469.56 for a gain of 122.2 points or 0.45%.

dow jones industrial average chart
The Dow jumped to a new all-time high on Monday morning. | Source: Yahoo Finance 

The S&P 500 rallied 17.83 points or 0.58% to hit 3,084.33. Nine of 11 primary sectors reported gains, with only real estate (-0.62%) and utilities (-0.28%) trading in the red.

The Nasdaq outperformed, leaping 59.76 points or 0.69% to 8,444.37.

Despite the risk-on mood, the gold price held firm above $1,510.

Trade War Optimism Pushes the Stock Market Higher

Six months after US-China relations broke down in May, the two economic superpowers have still failed to sign a trade agreement – even a partial one. However, Wall Street remains optimistic that Washington and Beijing will salvage a deal, and that optimism helped push the Dow Jones to a new zenith.

Early this morning, US Commerce Secretary Wilbur Ross told an Asian business forum that, unexpected setbacks notwithstanding, the US and China are “very far along” toward putting the finishing touches on the “phase one” trade deal  that President Donald Trump first previewed almost one month ago.

Ross, along with National Security Adviser Robert O’Brien, met with a delegation led by Chinese Premier Li Keqiang in Bangkok to hammer out the final details. If everything goes smoothly, Trump and Chinese President Xi Jinping could sign the partial deal in the US  as early as this month. However, if there’s been one consistent theme in US-China trade relations, it’s that everything rarely goes smoothly.

Moreover, there’s still no evidence that the phase one deal will engender further progress in trade relations, which could stagnate now that Beijing has reportedly given up hope about reaching a sweeping trade deal with the Trump administration.

Absent that comprehensive deal, and with no more Federal Reserve easing waiting on the horizon, the Dow could struggle to push past new milestones, including the 30,000-point target that some analysts believe the market could achieve  by early next year.

Morgan Stanley: Investors Must Brace for Painfully-Sluggish Returns as Bull Market Fades

S&P 500, is the stock market's bull run over?
Investors have grown accustomed to phenomenal returns over the past decade, but the stock market’s new normal won’t be nearly as exciting. | Source: Yahoo Finance 

Morgan Stanley has also been warning clients to brace themselves for a sudden stock market slowdown that could introduce investors to a new normal that will be anything but exciting.

According to Bloomberg, the investment bank’s strategists fear that, after accruing spectacular returns during the decade following the financial crisis, traditional investor portfolios will labor toward painfully-sluggish growth  in the decade that follows.

How sluggish? A portfolio comprised of 60% stocks and 40% bonds will grow by an average of just 2.8% per year – about half the historical average.

“The return outlook over the next decade is sobering,” according to strategists including Serena Tang and Andrew Sheets. “Investors face a lower and flatter frontier compared with prior decades, and especially compared to the 10 years post-GFC, when risk-asset prices were sustained by extraordinary monetary policies that are in the process of being unwound.”

What’s even more sobering is that investors could just plop their cash in a savings account and generate similar returns, without any of the risks. According to BankRate, multiple online banks currently offer high-yield savings accounts  that pay as much as 2.3% APY.

Click here for a live Dow Jones Industrial Average chart.