Where next for the Dow after breaking above 30000

The Dow Jones climbed over 400 points in the previous session, crossing 30,000 for the first time ever amid upbeat vaccine news, optimism surrounding a strong economic recovery in the coming year and improving political clarity after Trump’s administration approved the start of the transition presidential period.

Biden rebuilding the economy
News that ex-Federal Reserve Chair Janet Yellen will be Treasury Secretary also gave the markets a boost given that she is seen as a market friendly candidate and one who will work closely with Jerome Powell. Markets are interpreting her appointment as a sign that Joe Biden could focus more on rebuilding the economy than rather than pursuing aggressive regulatory policy.

The Dow hit an all-time intraday high of 30116.5 before easing back slightly to close a 30,046, up 1.5%.

The Dow crossing that milestone figure is a stark reminder of how far stocks have surged since the dark days of March. This month alone the Dow has rallied over 13% marking the best monthly gain since 1987.

Value stocks back in favour
The rally from 20,000 (crossed January 2017) – 30,000 was helped by a big lift from tech with Apple, Microsoft and Salesforce surging over 230% across the same period. However, the latest runup the surge in the Dow is thanks in part to a catch up trade in value stocks. Across the pandemic, big tech was massively in favour with investors basically rising the wave of 5 mega tech stocks. Now the doors have opened to a much broader selection of stocks. Value stocks have been hugely in favour this month on vaccine developments and hopes surrounding the economic recovery.

So could the Dow have more room to rally?
When big milestones are reached this can provoke Fear of Missing Out (FOMO) making a deep selloff after the milestone less likely. That said given the rapid run up from the lows could mean it needs to consolidate. As a result, reaching 40,000 could take longer than the 20,000 – 30,000 run up. There’s also a good chance that the market will want to see some more stimulus before pushing too much higher.

Sectors to watch
Tech is expected to remain a favourite but could well be joined by other sectors and industries. More recently investors have been backing cyclical stocks such as industrials, materials and financials. These are sectors that will do well when the economy reopens and rebounds next year

Health related stocks such as Johnson & Johnson, United Health could also have plenty of upside. Healthcare stocks have underperformed for a good part of the year on fears that a progressive Democrat in the White House would change healthcare legislation. The group has advanced since Joe Biden won, but there could well be more steam left in this rally , especially if a Blue wave looks less likely.

Dow Chart

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