The Dow climbed 350 points on Monday, but Nordea Asset Management expects a predictable pullback over the next few months.
The tech sector continues to be the catalyst for big swings in the Dow Jones, and Monday was no different as big gains in tech stocks brought risk-on to the Dow.
All three major U.S. stock market indices rallied over 1%, with the Nasdaq leading the way. The Dow Jones surged 350 points.
Although there was little in the way of economic data released, there were still plenty of reasons for trigger happy bulls to dive into risk assets.
Vaccine optimism has often been a substantial benefit to the Dow Jones, and it appears this storyline remains intact. AstraZeneca is resuming its late-stage trials, while Pfizer confirmed over the weekend that a vaccine may still become available this year. Watch the video below:
A weaker dollar also provided a positive catalyst Monday. The outlook for the greenback is closely tied to the stock market.
With the November election looming, Biden-Trump polling continues to be scrutinized by Wall Street, and the potential impact on the Dow is still a hotly contested issue.
While Biden’s more global outlook could help increase monetary velocity and weaken the dollar, his tax plan is less beneficial for risk appetite. On the other side, Donald Trump’s tougher stance on China has proven to be bullish for the dollar in the past. However, his deregulatory agenda is likely still beneficial to investors.
As tech looks to power out of its correction, the talking heads are getting more bullish again.
In a comment to CCN.com, Nordea Asset Management’s Sebastian Galy is generally in agreement that there is more upside in this market. Still, he is anticipating a correction in the short term:
We expect a predictable consolidation in the next two months, but we should see risk perform well till the end of 2021 driven by abundant excess liquidity. Some styles such as Growth should continue to de-anchor strongly from reality and generally dispersion increases. In such times, the analysis of trends, sectors, and names are likely to make a substantial difference.
With such a large focus on liquidity, this week’s Federal Reserve meeting is a significant risk event for traders. While Jerome Powell has made it clear that he is not considering negative interest rates, he is expected to reassure investors that inflation will be allowed to overshoot its target. Watch the video:
Along this line of thinking, Treasury Secretary Stephen Mnuchin said he doesn’t believe Congress should be worried about the Fed’s balance sheet, as he urged lawmakers to move quickly on stimulus for the economy.
There were only a few members of the Dow 30 toying with red figures to start the week.
Boeing was one of the top performers (+2%), as vaccine optimism boosted the outlook for the aviation industry.
Apple stock enjoyed a good day, rallying slightly over 1%, as the Nasdaq showed signs of recovery following a multi-week pullback.
Microsoft gained 0.8%, despite headlines that Oracle had won the battle for the TikTok partnership.
Last modified: September 23, 2020 2:31 PM