Stocks are pricing in a high degree of optimism, but they still rose on Thursday. Bullishness reigns.
The Dow Jones Industrial Average rose 148 points, or 0.49%, to close at 30303. The S&P 500 rose 21 points, or 0.6%, to 3722. The tech-heavy Nasdaq Composite rose 107 points, or 0.8%, to end at 12765. The biggest gainer on the S&P 500 was Lennar Homes (ticker: LEN), up 7.6%. The home-construction company beat on both top and bottom lines, as earnings per share totaled $2.82, beating expectations of $2.36. Revenue was $6.8 billion against estimates of $6.6 billion.
Fiscal-stimulus talks in Congress seem to be in the final stage, and investors largely expect a $908 billion package to pass during the lame-duck session. Leaders in Congress say a deal is almost finished. This would tide households and small businesses over with cash until Covid-19 vaccines spur state reopenings, potentially allowing for pent-up demand to materialize.
But fiscal stimulus has been increasingly priced in to the market. Some strategists have recently pointed out that stocks in the S&P 500 are a bit overextended from a technical standpoint. Indeed, only 41% of S&P 500 stocks rose Thursday, according to FactSet data.
Still, investors were engaged in buying stocks and shying away from safer investmentsâ€”the 10-year treasury yield jumped as the price slipped, signifying strong inflation and economic expectations. Jobless claims, for one, werenâ€™t helping. Initial jobless claims came in at 885,000, worse than the expected 818,000 and worse than the prior reading of 862,000. Sure, investors have been looking past weak economic data because of fiscal stimulus and vaccines. Those developments continue to drive money into stocks, Hank Smith, head of investment strategy at Haverford Trust, said.
Considering those positives, Smith noted the that question is: â€œHow much is the market right now pricing in on this very bullish economic scenario? I think itâ€™s pricing in a little bit for sure.â€
But â€œit does seem like every new development gives stocks an upward jolt lately,â€ JJ Kinahan, chief market strategist at TD Ameritrade, wrote in a blog post Thursday.
Bank of America strategists wrote in this weekâ€™s fund manager survey that their bull-bear sentiment indicator most recently read 6.8. A reading of 2 is a buy signal and a reading of 8 or above is a sell signal. Canaccord Geniuty strategist Tony Dwyer wrote in a note this week he looks for a near-term pullback.
Stocks might just be in for a bit of a pullback in the coming months.
Write to Jacob Sonenshine at firstname.lastname@example.org