Dow Hits Milestone, But The Real Energy Is Beneath The Surface

Yesterday was a fantastic session, one that will get more press than usual because of the milestone for the Dow Jones Industrial Average (DJIA). 

I think the Dow lost its usefulness as a proxy for the U.S. economy and stock market a long time ago, but it’s still featured on financial media, and everyone has heard of the index. 

However, there are too many old, boring names that are more reflective of yesteryear than tomorrow.

There are giant behemoths, but without Amazon (AMZN) or Facebook (FB), or Google (GOOGL), there is no way it’s a good proxy for what impacts our daily lives. Be that as it may, big round numbers like “30,000” and “Dow” are instant headlines in main street media. 

The good news is it’s a milestone, and like any milestone, it speaks to achievement, opportunity, and potential. I have to admit this: when the Dow hit 10,000, I was rocking that hat with all the swagger in the world. Then the Dow hit 15,000, and I began spying 20,000 hats. 

That one would take a while because a massive market crash interrupted the party. I have been reluctant to wear those commemorative hats ever since, although I admit that I will sport a Dow 100,000 hat when it happens.

And make no mistake; it will happen in my lifetime.

Bring up the Rear

What’s interesting about the Dow 30,000 hoopla is how badly the index is trailing its brethren in 2020 performance:

• NASDAQ Composite: +34.3%
• S&P 500: +12.5%
• Russell 2000: +11.1%
• Dow Jones Industrial Average: +5.3%

Message of the Market

I continue to be blown away by the action beneath the surface. The grittiness of Energy stocks, the latest effort from Financials to live up to the hype. And the still elusive comeuppance of mega growth Technology and Communication Services names.

Meanwhile, that March 2^3d low continues to feel like some kind of portal to a world of possibilities, where up is down, and weak is strong. Materials and Industrials continue to outpace the pack, although Technology is within striking distance (read: a few strong sessions).

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I came into the week expecting Energy to rock, but this is like the first time when folks saw Elvis, Chuck Berry, or Little Richard. For me, it was the first time I saw a commercial for Earth, Wind & Fire with the group on stage jamming “Getaway.”

This might be the best week ever for the Energy sector. Right now, it’s the best month for the sector since 1928.  And yet, if West Texas Intermediate (WTI) breaks out, this could just be the beginning of the move in oil stocks.

The Moral of the Story?

Now, it’s a “Tina” (there is no alternative) market, and money doesn’t want to leave the party. Rotation and bouncing from one sector to another is fun and profitable, so why stop now?

Sure, the market will get ahead of itself, which is fine, as it will establish parameters and future targets on pullbacks. But that’s not a conversation for today or tomorrow.

It’s a Party…And Everyone is Invited

Market breadth continues to dazzle. On the New York Stock Exchange saw advancers led the decliners more than three to one, and the up volume was 500% better than the down volume. New highs continue to mount with 286 on the NYSE, and 361 on the NASDAQ, versus 21 new losers combined on both platforms.

Party Over There…

The rally continues to broaden out, and now 299 S&P components are in the plus column. There is still a huge difference between the top twenty winners versus the rest of the pack, but the most important news is investing in the right names has been rewarded.

S&P 500 Winners

• 299 average gain: +25.20%
• Top twenty average gain: +94.15%        

S&P 500 Losers

• 209 average loss: -17.32%
• Bottom twenty average decline: -47.97%

NASDAQ Winners

• 609 average gain: +71.09%
• Top twenty average gain: +585.02%         

NASDAQ Losers

• 402 average loss: -20.19%
• Bottom twenty average decline: -61.88%

What’s Missing?

"Right now, we're not seeing any signs of tightening of financial conditions,” New York Fed President John Williams said in an online discussion hosted by the Wall Street Journal.

During the session, the very influential John Williams pointed out the role the Fed will continue to play (read more accommodation in December), and pointed out that he sees “fiscal policy as the most powerful tool over the next six months.”

Make no mistake. This market is banking on fiscal stimulus and would like to get it without going through the usual tantrums.  Think back to September.

Portfolio Approach

I’m thrilled to be fully vested in the model portfolio, but there are ideas on the buy list that might be worth ringing the register to own.  

Today’s Session

Initial weekly jobs claims rose this week to 778,000 higher than the streets estimate of 733,000 and up from 742,000 in the prior week, as Covid related shut down continue. This is back to back disappointments and sharply higher numbers, which should put more pressure on Congress to act now and not wait till 2021.

There is lots of data out this morning. October Durable Goods orders grew 1.3%, and September was revised higher to 2.1% from 1.9%.    The third quarter second estimate GDP was as expected at 33.1%.    And at 10 am ET, we will also get October Personal Income and Spending.