By Amrith Ramkumar
The Dow Jones Industrial Average's ascent to 30000 Tuesday
signals more companies are beginning to participate in the new bull
market, offering hope to investors who have long waited for the
rally to widen.
Apple Inc. and Microsoft Corp. were two of the biggest
contributors to the blue-chip index's latest 10,000-point
milestone, a journey that took nearly four years. But it was a
November rally in lagging cyclical stocks including Boeing Co.,
Honeywell International Inc. and Goldman Sachs Group Inc. that
helped push the 30-stock index over the hump.
Upbeat trial results for coronavirus vaccines developed by
Moderna Inc. and the duos of Pfizer Inc. and BioNTech SE and
AstraZeneca PLC and the University of Oxford are reordering the
market's winners and losers, prompting wagers that the U.S. economy
will return to normal more quickly than anticipated.
That would be a boon for the Dow, which is oriented toward
shares of banks and manufacturers that are particularly sensitive
to the economy's trajectory. The index has trailed the S&P 500
and Nasdaq Composite by a historic margin in 2020 and is up 5.3% in
2020. It peaked at 29551 in February, dropped as low as 18592 in
March when the economy shut down, then recovered its losses more
slowly than its peers.
That is partly because the Dow has missed out on much of this
year's boom in technology stocks. Investors have piled into shares
of internet giants such as Amazon.com Inc., Facebook Inc., Google
parent Alphabet Inc. and other tech stocks that aren't included in
the index, betting they would emerge as winners of the stay-at-home
trends.
The rallies in those stocks have spurred double-digit percentage
gains in the S&P 500 and Nasdaq Composite this year. The
advances have led some analysts to argue there is a seismic
disconnect between the stock market, which continues to set new
highs, and the economy, which is still recovering from the
pandemic.
Many analysts also have remained skeptical of the stock-market
rally because the cyclical sectors hadn't participated, until
recently. The market's reliance on a handful of internet stocks
concerns these investors who say that a broader climb with more
companies hitting new highs will lead to a steadier advance.
The recent Dow rally therefore sends a rosy signal to those who
contend that major indexes perform best when the economy is exiting
a recession and growth-sensitive companies such as banks lead the
way. Boeing, Honeywell and Goldman have each risen at least 25%
this month, powering the Dow to new records.
"A very important 2021 narrative is going to be recovery and
reflation," said Yousef Abbasi, global market strategist at StoneX
Group, referring to economic expansion that is aided by stimulus
programs. "It tees up a potential rotation away from a sector that
has carried this market."
In another sign investors are more optimistic about the economic
outlook, the yield on the benchmark 10-year U.S. Treasury note has
recently hovered around 0.9%, up from a record low of 0.501% hit
earlier in the year. Yields tend to climb when investors are
anticipating stronger growth and inflation. Higher yields can help
bank stocks, lifting the gap between what they pay on deposits and
charge on loans.
The recent gains in cyclical stocks will test whether a new
group of companies can lead major indexes higher. For much of the
past decade, technology has suffered brief periods of
underperformance, only for their consistent growth in a world with
ultralow interest rates to attract investors once again. Low rates
limit returns from holding cash and bonds, making shares of
companies that can rapidly grow earnings more appealing.
Apple itself added more than 2,500 points to the Dow during its
march from 20000 to 30000, highlighting the iPhone maker's key role
in the global economy. UnitedHealth Group Inc., Microsoft and Home
Depot Inc. are next on the list of large contributors to the
10,000-point milestone, underscoring how investors have favored
stocks tied to technology, health care and in-home activities
lately.
"Technology is a defensive sector now, which is crazy," said
Gene Goldman, chief investment officer at Cetera Investment
Management.
In another sign of technology's importance, business-software
company Salesforce.com Inc. was recently added to the Dow, in part
because Apple executed a stock split that lowered its share price
and its weighing in the index. The Dow gives companies with higher
stock prices more influence. As Salesforce joined the index, Exxon
Mobil Corp. was one of the companies removed.
Apple first overtook Exxon as the world's most valuable company
in 2011 and joined the Dow about 3 1/2 years later. It then became
the first U.S. company to join the trillion-dollar club, with its
market value passing $1 trillion in August 2018 and $2 trillion in
August 2020.
Editors at The Wall Street Journal participate in selecting the
stocks in the Dow, though the index itself is now part of S&P
Global Inc.
While many analysts are hoping for a broader rally in the
future, some remain confident that themes like remote work and
cloud computing will persist beyond the pandemic, giving tech
stocks an edge.
"Even when we go back to some sort of new normal, I don't think
any of these trends will change," said Michael Lippert, who manages
the Baron Capital Opportunity Fund, which counts Microsoft,
Alphabet and Amazon among its largest holdings.
Ben Eisen contributed to this article.
Write to Amrith Ramkumar at amrith.ramkumar@wsj.com
(END) Dow Jones Newswires
November 25, 2020 08:10 ET (13:10 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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