The Dow zipped higher after Boeing ignited a stock surge by dumping its CEO. Vanguard warns that US stocks face severe risks in 2020.
The Dow Jones sped higher during the last full trading session before the Christmas holiday. But as investors bask in the self-fulfilling prophecy of a “Santa Claus rally,” Vanguard’s top economist warns that the stock market faces severe risks heading into 2020.
Wall Street’s three major kicked off the holiday-shortened trading week on track to close at new all-time highs.
The Dow Jones Industrial Average climbed 92.9 points or 0.33% to 28,547.99, notching its third straight session gain.
The Dow’s rally was headlined by its heaviest component, Boeing. BA shares surged more than 3.5% after the beleaguered aerospace giant fired its CEO, Dennis Muilenburg.
The S&P 500 rose 0.08% to 3,223.85, and the Nasdaq climbed 0.15% to 8,938.64 to round out a positive day for US stocks.
Not even ugly manufacturing data could stunt the bullish mood. Durable goods orders plunged 2% in November, the biggest decline in six months. Economists had expected an increase of 1.5%, but a massive decline in defense-related orders sapped those predictions. Even worse, October’s data were revised downward (+0.2% from an initial reading of +0.6%).
The Dow and broader stock market seem to be closing an already-spectacular 2019 with a “Santa Claus rally,” but investors shouldn’t necessarily expect those gains to continue in 2020.
That’s according to Joseph Davis, the chief economist and chief investment strategist at $5.6 trillion asset manager Vanguard. Speaking with Bloomberg, he warned that there’s a 50% chance the stock market suffers a correction in 2020. (A correction is a pullback of 10% or greater).
“Financial markets run the risk of getting ahead of themselves,” Davis said. “Across the board, expected returns for most strategies are below trailing three-year returns[.]”
Vanguard believes that stocks are priced for 3% GDP growth, even though most economists expect growth to come in around 2% (and some, like ING’s James Knightley, warn that it could be as low as 1.4%).
Additionally, stock market volatility held at “unsustainably low” levels in 2019, which should change in 2020. The CBOE VIX, a measure of implied volatility, is currently fluctuating below 13 after spiking above 30 in December 2018.
This article was edited by Sam Bourgi.
Last modified: January 22, 2020 11:40 PM UTC