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On Tuesday, November 24th, the Dow Jones Industrial Average pushed above 30,000 for the first time since its inception in 1896. It took the Dow over one hundred years to reach the 10,000 mark, less than twenty years to break 20,000, and only three years to hit 30,000.
The catalysts mentioned for the breakthrough were further vaccine developments and progress towards the Presidential transition from Trump to Biden.
The index is accelerating so quickly that several analysts believe 40,000 is right around the corner.
Here’s Why Dow 30k Doesn’t Matter
The stock market breaking through to new all-time highs is great, don’t get me wrong. It’s good news for bullish investors. And everyone’s 401(k)s are benefiting from rising stock prices.
The media sure had a heyday with the news and wanted to capitalize on the clicks.
However, in the big scheme of things, the Dow hitting 30,000 doesn’t matter. It’s overhyped for three main reasons. The Fed is inflating stock prices, the market is not a reflection of the actual economy, and the Dow is a nonsense index.
The Fed Is Inflating Stock Prices
It’s no secret that the current bull market is far from organic. The Fed has undeniably created an artificial stock market bubble. The Dow breaking 30,000 is almost entirely thanks to the Federal Reserve.
Their use of low-interest rates, monetary stimulus, liquidity injections, and quantitative easing have greatly contributed to the rise.
Printing money to prop up the stock market then celebrating its rise is asinine. Who cares how high the score is if you’re cheating?
It’s Not a Real Picture of the Economy
The stock market is not the economy. So why is the Dow 30,000 being touted as fantastic economic news? It shouldn’t be. Although stocks are not an exact reflection of the economy, the two are closely related.
The disconnect between the market and economy further highlights the bubble created by central banks.
There are millions of people without work, and the income gap is growing at a staggering rate. The Dow Jones Industrial Average pushing to new highs doesn’t matter for the majority of Americans.
The Dow Is an Overrated Stock Index
The Dow Jones is a crappy index. Many investors do not even pay attention to it because it is a poor gauge of the stock market. Oddly enough, it is used extensively by the media to portray how good or bad the market is doing.
The media likes the Dow because it is often measured in points and is price-weighted. This allows for juicer headlines like “the Dow dropped 2,000 points!” Markets in turmoil, amirite?
The index is comprised of just 30 stocks. Even worse, the stocks are one-sidedly picked by the folks at the Wall Street Journal.
Thirty subjectively chosen stocks that are in a price-weighted index shouldn’t be taken seriously.
The Dow is just a token stock index used for sensational headlines. The 30,000 mark is cool and all, but it’s not important news for the real market or the economy.
November 2020 US Market Performance
Equities booked record monthly returns in November. The Nasdaq, Russell 2000, Dow, and S&P 500 all had their best November in decades. The Russell 2000 logged its greatest monthly return ever.
COVID-19 vaccine progress provided a boost to stocks along with predictions of additional stimulus. The “risk-on” attitude of investors caused gold to plummet under $1800 an ounce.
November 2020 Market News Recap
Janet Yellen is Bidens pick for Treasury secretary. The former chair of the Federal Reserve, Janet Yellen, is expected to take the helm as the next Treasury secretary. Wall Street mostly welcomes the news as she has always been dovish in the past.
Bitcoin makes a new ATH. The cryptocurrency has been on a tear throughout November and reached prices as high as $19,786.17. Investors and some intuitions are buying up the so-called “digital asset” as an inflation hedge and store of wealth.
Disney extends employee layoffs. Four thousand more workers will be let go by the Walt Disney Company, bringing 32,000 for the year. The company also announced 37,000 employees are on furlough, citing the pandemic.
In-store shopping down 52% while online sales hit record on Black Friday. Consumers racked up a record $9 billion in online sales during Black Friday–compared to $7.4 billion in 2019. Physical store traffic dropped 52% compared to last year. Gee, I wonder why?
Tesla set to join the S&P 500. Beginning December 21st, Tesla will be a member of the S&P 500. It has not yet been stated what company it will be replacing in the index. The stock has been soaring all month long on the news and shows no signs of slowing down. Its market cap has surpassed Warren Buffett’s Berkshire Hathaway and is now the 6th largest US company.
Citron Research calls Palantir stock a casino. The short-selling firm stated a year-end price target of $20 for the newly public company. The stock is currently a favorite of the gamblers who frequent the popular subreddit r/wallstreetbets. Several have posted that they don’t even know what the company does but still yoloed their life savings.
Amazon launches a pharmacy delivery service. The mega-corporation that’s been dominating retail is now taking on the pharmaceutical industry. The news caused a drop in stock prices for its competitors like Walgreens and CVS. The service brings special discounts and free shipping to its Prime members.
Buffet’s Berkshire Hathaway goes long Pharma with Q3 update.
Here is a look at the most notable trades for Q3:
- New positions in Bristol Myers Squibb, Pfizer, Merck, and AbbVie.
- New positions in T-Mobile and Snowflake.
- Increased holdings in General Motors, Bank of America, and Kroger Company.
- Reduced holdings in JPMorgan, Apple, and Barrick Gold.
- Completely exited Costco.
McDonald’s is going McVegan with McPlant. The fast-food giant announced plans for a new lineup of plant-based menu items. The products would include veggie alternatives for burgers, chicken, and more. The name for its plant-based meat, “McPlant,” was quickly ridiculed on social media.
Market Outlook for December 2020
The swift development of a COVID-19 vaccine has created a bullish catalyst that can continue to push stock prices higher. Vaccines are expected to be administered as soon as December 11th.
If any vaccine setbacks or issues with logistics arise, it could be a catalyst for a sell-off. The market has been running hot through November, and a significant pullback seems overdue.
Overall, December is a historically strong month that usually includes an end of the year Santa Rally. All the bearish headwinds have been ignored thus far, and we don’t see that changing just yet. The market isn’t believing the President’s allegations of election fraud and has all but priced in a Biden victory.
Things can always change on a dime. The current environment is full of headline risk. A deeper short-term pullback is likely to occur sometime this month. Overall, stocks should continue their climb to the upside.
November unemployment claims are rising again, and consumer confidence fell sharply. If this trend continues in December, it could mean we are heading back into recession. (Or the real economy is still in one and it’s just getting worse.)
Many economists are urging the need for more fiscal support. The second round of stimulus may make headlines with a possibility of a smaller deal getting passed before the year-end.
The gridlock in Congress is strong, and the market has been breaking all-time highs. So, another round of stimulus seems is doubtful to pass in December.