What’s Going On Here?This is no small thing: the Dow Jones Industrial Average index hit an all-time high this week. What Does This Mean?The Dow is one of the most important US stock indexes, but it’s a slightly different beast than, say, the S&P 500. For starters, its value is determined by its constituent companies’ share prices, rather than their market capitalizations. In other words, higher-priced stocks have more of an influence than their lower-priced rivals. Secondly, it tracks the value of far fewer companies: 30 to the S&P’s 500. And since they’re a cross-section of American industry as a whole, they benefited from the news that the presidential transition is now officially underway. That led to a surge in their share prices, tipping the Dow over the 30,000 mark for the first time ever. Why Should I Care?For markets: Rotation, rotation, rotation.
The prospect of an end to the pandemic has analysts tripping over each other to tell you how to set up your portfolio for maximum gains. They don’t necessarily agree how to do it, but they do agree on one thing: it’s time to ditch the stocks that did well in 2020 and rotate to something new. As for what that “something new” is: plenty of them are backing cheap-looking value and economically sensitive cyclical shares, which have been gradually catching up with the Big Tech stocks that led the rally earlier this year.
The bigger picture: No rest for the wicked.
There’s an old truism that investors trade less in the lead-up to Thanksgiving, making markets more vulnerable to sudden shifts. But 2020 has no time for your truisms: investors who wanted a piece of the rally traded 75% more shares on the Monday and Tuesday than they did the same time last year (tweet this). Looks like it might’ve taken some trading platforms by surprise too: both Vanguard and Merrill Lynch reported platform outages on Wednesday. | 