The Dow Jones pulled off a blistering rally on Tuesday, rocketing more than 400 points higher and leaving the S&P 500 and Nasdaq in its dust.
Today’s stock market moves were all about defense. The Dow’s ascent was headlined, not by tech giants like Apple or Microsoft, but by low-growth stocks like Caterpillar, Home Depot, and McDonald’s.
As of 3:11 pm ET, the Dow had rampaged to a daily gain of 412.95 points or 1.58%. The rally launched the blue-chip index to 26,498.75.
It seems that Monday’s huge reversal in risk-appetite is having a lingering effect on the stock market.
Relentless speculation could be about to see a rotation into value. The prices of many tech stocks have gotten extremely disconnected from their fundamentals.
That may explain why the tech-heavy Nasdaq dipped 0.12% to 10,375.09 today. The broader S&P 500 index rose 0.51% to 3,171.46.
In a comment shared with CCN.com, Sebastian Galy of Nordea Asset Management advised investors to take a cautious approach to growth stocks.
We had expressed caution on growth stocks in the past few days, and we now upgrade this. The reason is price dynamics. A carry trade that starts to come undone wobbles in a contained range and then zips back up to the top as is the case today.
In option parlance, gamma increases sharply but in a contained range of a few percent as any major dip is seen as a spectacular opportunity to buy in the dream of participating in the adventure of say, Tesla.
It’s unclear if traders have begun pricing the 2020 election into stocks, but Goldman Sachs warns it’s bound to happen sooner or later.
Given the woeful state of Donald Trump’s poll numbers, it’s looking increasingly plausible that the Democrats will pull off a sweep at the ballot box.
Goldman predicts that if the Democrats win the White House and both chambers of Congress, this “blue wave” could crush the stock market by burdening the economy with higher taxes and more regulations.
While it’s prudent for Dow Jones bulls to start considering a Biden win, it’s noteworthy that the gap has closed recently – if ever so slightly. Trump currently trails Biden by “only” nine points in the RealClearPolitics national average.
On a positive day for the Dow 30, construction giant Caterpillar led the way with a 3.5% gain. Widely seen as a bellwether for global manufacturing, CAT’s move likely reflects some decent economic data out of China.
CAT bulls will be paying close attention to rising tensions between the U.S. and China (especially as the Huawei situation develops). Today’s movements suggest investors are confident Trump won’t push the envelope too far in an election year.
After a historic run, it appears the tech sector is taking a breather. Microsoft fell for a second straight day, while Apple’s 0.75% gain put it in the bottom half of the index.
Investors appear to be playing defense, gorging on “stable” stocks like Home Depot (+2.4%) and McDonald’s (+2.3%).
JPMorgan Chase climbed 0.6%, but it failed to hang onto most of its initial post-earnings bounce.
UnitedHealth Group – the second-heaviest stock in the Dow – jumped 2.75% ahead of its own earnings release tomorrow.