How investors should think about Dow 30,000

Alexis Christoforous
·3-min read

The Dow’s (^DJI) journey to 30,000 has been nothing short of remarkable. It’s the latest milestone in a post-election rally that’s been fueled by promising results from three potential COVID-19 vaccines and increased clarity in D.C.

The blue-chip index flirted with 30,000 in February, and then the pandemic hit. In March with much of the U.S. in lockdown because of the virus, the Dow briefly fell below 19,000. Since then, the index has soared more than 60% amid hopes for a vaccine and a return to normalcy. The Dow is now on track to close out its best month since 1987.

And it’s not just the 30 Dow stocks. This has been a broad-based recovery rally. The S&P 500 (^GSPC) is up 54% since its March lows, while the Nasdaq is up a mind-numbing 75%.

“This November rally in cyclicals is certainly showing up in the Dow,” Jeffrey Kleintop, Chief Global Investment Strategist at Charles Schwab tells Yahoo Finance Live.

“This is an index that has historically been composed of companies that make things like Boeing, Caterpillar, 3M,” he added. “So, to see the further rally here in cyclicals despite the second round of lockdowns around the world and the rising virus count is encouraging and tells us that the markets are really looking to a broader cyclical recovery in 2021.”

While he remains bullish on U.S. stocks, Kleintop believes international equities could be the leaders next year. “We're looking for better GDP, better economic and earnings growth outside the US for the first time in a long time.”

Stocks also found support in President-Elect Joe Biden’s likely pick of former Federal Reserve Chair Janet Yellen as the first female Treasury Secretary.

“Having a labor economist who was also chair of the Fed now in the Treasury Secretary spot bodes extremely well for [the markets],” said Shawn Cruz, trader strategy manager at TD Ameritrade.

“The numbers themselves of course don’t actually mean anything”

Dave Nadig, CIO and Director of Research for ETF Trends, cautions against trying to time the market, but encourages investors to take advantage of any dips.

“I think it’s reasonable for folks to be playing defense when we hit these sort of mythological numbers like we have today in the Dow,” he tells Yahoo Finance Live. “The numbers themselves of course don’t actually mean anything. It’s not like it’s written in a tablet somewhere that something’s got to happen when we cross them, but I think it’s a reasonable time to look at your portfolio and ask whether you still have the same conviction you had before.”

Trader Peter Tuchman wears a "Dow 30,000" cap as he works on the floor of the New York Stock Exchange, Wednesday, March 4, 2020. (AP Photo/Richard Drew)
Trader Peter Tuchman wears a "Dow 30,000" cap as he works on the floor of the New York Stock Exchange, Wednesday, March 4, 2020. (AP Photo/Richard Drew)

Nadig has seen a rise in products that manage investor’s exposure to damage on the downside. His pick is Simplify US Equity PLUS Convexity ETF (SPYC).

“That uses derivatives or options to effectively buffer some of your downside risk and profit whether the market melts up or down,” Nadig added. “There are probably 30 or 40 products that have launched in the past year that use derivatives to mold returns, and the flows have really been there. Investors are putting their money where their mouth is.”

The market’s resilience has left many Wall Street veterans scratching their heads since it comes as new Covid-19 cases surge and many cities place restrictions on businesses.

Some analysts fear we could see a replay of February, when new highs happened just before the economic slowdown sent stocks into free fall.

Kleintop, however, believes recovering from the pandemic will be a key catalyst for market returns in 2021.


Alexis Christoforous is an anchor and reporter for Yahoo Finance. Follow her on Twitter @AlexisTVNews.

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