Tuesday's Market Minute: Rally Ho!

Equities continued their upward march to kick off the last trading week of the year. All four of the major indices hit record levels on Monday with the Russell 2000 the only one not to settle at a record close. The S&P 500, Nasdaq 100, and Dow Industrials all surged to another record close as the Santa Claus rally continued. Stocks bounced after President Trump signed the $900 billion coronavirus relief package into law this weekend, which included $600 direct payments to a majority of Americans. The combination of vaccine rollouts, fiscal stimulus, and easy monetary policy continues to create a positive outlook for equities going into 2021. The rally has extended the yearly gains for the indices with the NDX spiking 47%, the SPX up 15.6%, and the Dow Industrials higher by 6.5% while the RUT has jumped nearly 20%. Some market-watchers are calling it a bubble in equites, but are those the ones that missed the rally?!

The vaccine rollout has begun but Coronavirus cases have continued to surge and valuations for stocks is at historically elevated levels. The parallels between this rally and others in history that end in a pull-back are there with margin-debt at records, IPO mania, and fundamentals getting ignored on optimism. The difference may the fact that the Fed has continued to provide fiscal support and low interest rates this time around while Governments also are providing more stimulus across the globe. The rally is based on an economic acceleration in 2021 as the vaccine rollout continues and earnings growth should come around for many sectors. I’ve seen this market scenario before in my trading lifetime and sometimes it does not end well. But the inputs and fiscal environment have changed, which may lead to a better outcome for stocks this time around. The “buy the dip” mentality for investors is in full effect so the rally may continue in the near-term but be aware of volatility into 2021.