Dow Hits Five-Month High As Cyclical Issues Surge

Hi Everyone,

Despite the Nasdaq’s persistent relative weakness, the stock market closed well above its intraday lows, with only the tech benchmark finishing in the red. The Dow was up 358, or 1.3%, to 27,792, the Nasdaq lost 43, or 0.4%, to 10,968, while the S&P 500 rose by 9, or 0.3%, to 3,361. Advancing issues outnumbered decliners by a more than 7-to-3 ratio on the NYSE, where volume was very light.

Traders said that bulls staged another impressive afternoon comeback today, thanks, in part, to the Dow’s continued strength. As one trader explained, “The industrial average closed higher for the seventh day in a row, and the eye-popping performance of industrial giant’s Boeing BA, + 5.5%), Caterpillar (CAT, + 5.2%) and Raytheon (RTX, +4.9%) supports the idea that a new ‘reflation’ trend indeed started last week.”

Besides the Dow, the Russell 2000 was the other notable positive outlier today, in-line with last week’s trends. Both indices closed the day at new recovery highs, which is a huge milestone for bulls. The S&P 500 is already eyeing its all-time high, but the fact that the previously weaker benchmarks are also making technical progress is great news for the coming months. Only the weakness among financials raises questions regarding the rally’s sustainability, with the dire state of the European financial sector being a real cause for concern.

The improving COVID outlook and the encouraging economic trends are likely the most critical factors behind last week’s shift toward “traditional” cyclical assets. Energy-related issues, industrials, materials, and the most lockdown-sensitive sectors all gained considerable ground today, underlying the theory. The dollar’s strength confirms that investors are more upbeat about the U.S. economic recovery, in the wake of Friday’s bullish government jobs report and today’s positive job openings estimate, even in the face of the global risks.

President Trump’s executive orders don’t mean that the stimulus negotiations are over in Washington. Treasury Secretary Mnuchin stated that the White House is ready to “put more money on the table,” although the two sides are still far from an agreement on several key topics, such as state and municipal funding and school reopening. The market’s reaction to the executive orders was tentatively positive, but a comprehensive bipartisan agreement would likely further investor confidence and asset prices.

On a much more important note, please enter your answers to our “Road to The U.S. Open” contest!! Haha!!

As always, have a great evening and stay tuned!!!

Joe

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