As the Dow Jones surged in 2019, one class of investors went AWOL. Now, JP Morgan says they're about to fuel the stock market's next leg up.
The Dow ratcheted higher on Monday, erasing last week’s losses and pushing the stock market back toward all-time highs.
As Wall Street debates whether the rally will hold, investment bank JP Morgan says that an investor class who went AWOL in 2019 will return to equities with a vengeance in 2020.
The US stock market’s three primary indices took a collective step forward on Monday.
The Dow Jones Industrial Average bounced 89.29 points or 0.32%, lifting the index to 27,964.91.
The S&P 500 rose 13.22 points or 0.43% to 3,123.74. Ten of 11 primary sectors reported gains, led by technology’s 0.78% surge. Only energy traded in the red, losing 0.25% as the price of oil fell.
The Nasdaq secured the best performance, jumping 58.29 points or 0.68% to 8,578.18.
The stock market has raced higher this year, but for the most part, ordinary investors haven’t been the ones in the driver’s seat. Retail buyers have navigated the markets with extreme caution, fearing a recession and remaining skeptical about the US-China trade deal.
As the S&P 500 and Dow Jones speed toward one of their best years since the financial crisis, investors are tiring of missing out on the fun. According to JP Morgan, 2020 will usher in a “great rotation” in which retail buyers begin abandoning cautious investments in bond funds in favor of equities.
The investment bank wrote:
Given this year proved to be a strong year for equity markets, helped by institutional investors, then we should see retail investors responding to this year’s equity market strength by turning [into] big buyers of equity funds in 2020. This suggests 2020 could be another strong year for equities driven by retail rather than institutional investors.
Retail’s return comes at a pivotal time for the US stock market. While institutional investors had stayed the course – and reaped the rewards – the absence of ordinary investors had created a drag on equities.
Filling the void have been the public companies themselves, who have been gobbling up their shares on the open market at a record pace. But the buyback rate has begun to wane heading toward the year’s close, and Goldman Sachs predicts that it will continue to edge lower in 2020.
This article was edited by Sam Bourgi.