Stocks rallied for a fourth day on Thursday, ending sharply higher as investors continued to cheer the increasing likelihood that the pending lineup of senators and reps in Washington will be divided along party lines, paring down the chances of sweeping reforms for corporate America, notes Jon Markman, editor of Strategic Advantage.
Both the Dow and S&P 500 each ended about 2% higher on Thursday without even breathing hard. It was like no big. The Nasdaq also climbed 2.6%, led by our kinds of names, which was sweet. This time there were some crumbs left on the table for small caps as the Russell 2000 pirouetted from a string of losses to 2.8%.
Breadth favored advancers by a 6-1 margin and there were 587 new highs and just 66 new lows. Now we’re finally getting overbought. New highs included Alphabet (GOOG), Thermo Fisher (TMO), Qualcomm (QCOM), Deere (DE), and Sherwin-Williams (SHW). The new highs came from a wide variety of sectors, just a day after seeing the health care sector control yesterday’s highs.
So, the Dow Industrials managed to log its fourth straight session with a 1% or greater gain. According to SentimenTrader analysts, since 1896 the index has strung together four straight big up days only 19 other times. In recent decades, it led to some shorter-term weakness except for once, but the overall bias was positive over the medium-term with an average gain of 6.1% in the ensuing six months.
The most recent instance was Oct 11, 1982, and the Dow rose 12.7% in the next six months and 25.6% in the next year. Cool. That date was just three months past the start of the greatest bull market of our lifetimes, which began in August 1982 and ended in 2000. Can’t help but wonder if today will be seen 40 years from now as the first inning of a major new bull market as well – one that is led by ingenious technology and transportation and pharmaceuticals that improve our interactions, restore our relationship with the environment and send pioneers to Mars.
All the pundits are trying to explain the rush higher in political terms, though as we know stuff that happens in DC barely merits a blink of our eyes most of the time. This time the connection makes some sense. "This election result does not give the Democrats a mandate for the radical change of course in economic, environmental and social policy promoted by the progressive wing of the party," Commerzbank said in a note. "Particularly expensive projects, especially the 'Green New Deal,' are unlikely to have much chance of being implemented."
Republicans in the Senate could also prevent a proposal by Democratic presidential nominee Joe Biden to raise corporate taxes to 28% from 21%, Commerzbank added.
Market participants also digested the latest oratorio from the Federal Reserve, which left its key Fed funds lending rate at between zero and 0.25%. The central bank's rate-setting committee said it would adjust monetary policy as necessary if further risks to the economy's recovery from the COVID-19 pandemic emerge.
All 11 sectors ended higher, with six jumping more than 1.7%. Materials led, surging about 4.1%. as Dow (DOW) popped 5.4%. Tech shares rose 3.1%, lifted by Salesforce.com's (CRM) 3.8% gain and Apple's (AAPL) 3.6% advance. JPMorgan Chase's (JPM) 4.1% rise helped to lift financials about 2.5%. Industrials rose nearly 2.3%, led by Caterpillar (CAT) at 5.1%. General Motors (GM) rose 5.4% after the auto giant's third-quarter earnings blew past expectations.
Bottom Line: Stocks have become overbought in a hurry so it’s fair to expect a pullback to digest the gains and set up for the next big thrust forward. Not sure what the trigger might be, but it’s not hard to conjure up the possibility of a constitutional crisis if the president were to definitively lose the election in coming days but refuse to concede. Or, you know, something more mundane like Russia creating a distraction for the GOP by annexing Ukraine. I’ve got a million of them. The point is that it wouldn’t be a surprise to see half the recent gains given back before the next big rally that sweeps stocks to new highs through January and beyond. Stay on your toes.
Learn more about Jon Markman here.
