What is Happening?
The Dow closed above 30,000 for the first time. The Index was started on May 26th, 1896, at a value of just 40.94. The surge comes on the back of low interest rates, and a ‘buy-the-dip’ mentality from retail and institutional traders alike.
Why does this Matter?
On March 23rd, 2020, the Dow Index closed at 18,591 amid coronavirus-induced lockdowns. Investors that bought during the dip were rewarded with a 62% return, as the Federal Reserve pumped massive liquidity in the financial system.
With bond yields close to zero, investors continue to barrel into the stock market. Technology has also made equity trading more accessible than ever. In the past year, retail traders opened millions of new brokerage accounts, with no-commission trading. These freshly minted investors keep beating Wall Street veterans. According to Goldman Sachs, a basket of their most favored stocks outperformed the S&P 500 Index by 60% this year. Tesla is up over 500%, while Moderna quintupled year-to-date. It’s no wonder the American Association of Individual Investors reported that retail confidence is at its highest in 3-years.
Some prominent Wall Street figures, such as Leon Cooperman, think stock gains are getting out of control. Simultaneously, others worry that the U.S. stock market will go stagnate for decades like Japan’s. At least this market rally seems to be broad-based, unlike the 2000 dot-com bubble that pushed high flying tech stocks to extreme heights.
The Dow Jones Index breaching 30,000 yesterday was a historic moment that underlines the long-term power of the American economic machine. Whether you believe stocks will go up or down, expect a lot of volatility ahead as millions of retail traders continue to chase stocks.
This story was featured in the 11/25/2020 edition of the daily MarketBites Investment Newsletter written by the investment professionals at Taylor Hoffman Capital Management.
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Meet the Author
Raymond grew up in Budapest, Hungary, where he played tennis for the Hungarian Junior Davis Cup team. At the age of 16, he received the Davis United World College Scholarship, which was established by legendary investor Shelby Cullom Davis, allowing him to attend the Taft Boarding School in Watertown, CT. After Taft, Raymond received a Presidential Scholarship to the Robins School of Business at the University of Richmond, where he studied Quantitative Economics and Finance. Raymond is a CFA Level III Candidate. Prior to joining Taylor Hoffman, Raymond worked at various financial institutions in the insurance, asset management, and financial consulting space. Outside of the office, Raymond enjoys playing tennis at ACAC and Westwood Country Club.