Stocks rose sharply Monday, and all three major U.S. indexes set intraday and closing records, after President Donald Trump finally signed the $900 billion fiscal stimulus bill.
The Dow Jones Industrial Average added 204.10 points, or 0.68%, to close at 30,403.97. The S&P 500 rose 32.30 points, or 0.87%, to end at 3,735.36, the Nasdaq Composite rose 94.69 points, or 0.74%, to close at 12,899.42. The biggest gainer in the S&P 500 was retailer Ulta Beauty (ticker: ULTA), which saw shares soar 5.1%.
As late as Sunday afternoon, it wasnâ€™t clear that Trump would sign the bill. The possibility of a presidential veto didnâ€™t bother the stock market, which rose through those concerns, as a veto would have likely been overridden in Congress. The bill includes checks to households and unemployment benefits, as well as small business relief. This will all help small business and households have cash at the ready for re-hirings and spending as states reopen. Covid-19 vaccines are expected to be widely distributed throughout the next year.
Investors had been anticipating since mid-November that more fiscal stimulus would get done during the lame-duck session and while the stimulus has mostly been â€œpriced in,â€ investors usually assign some probability that a positive outcome wonâ€™t materialize. So one reason stocks rose Monday was mostly because the president put pen to paper. â€œI donâ€™t think itâ€™s anything more than that,â€ Marc Pfeffer, chief investment officer at CLS Investments told Barronâ€™s.
Stimulus aside, market sentiment is generally resilient at present. Many on Wall Street had expected a near-term pullback in stocks, but after the S&P 500 slipped 0.1% from Dec. 4 through 22, it has resumed rising. â€œPeople were expecting a bigger pullback and we havenâ€™t gotten it yet,â€ Pfeffer said. He added that with long-term interest rates still below the expected rate of inflation, the path of least resistance for stocks remains upward. â€œStocks are the only game in town,â€ Pfeffer said.
Importantly, trading action Monday wasnâ€™t completely optimistic when it comes to economic expectations. Although 64% of S&P 500 stocks rose according to FactSet data. Most of the upward momentum was in defensive sectors, which are insulated from changes in the economy. The average real-estate stock on the S&P 500 rose 0.9%, while utilities rose 0.7%. and consumer staples rose 0.5%.
Highly cyclical sectors of consumer discretionary, financials, and industrials, however, all rose less than 0.2%. Cyclical stocks have had an impressive run in the fourth quarter and some of those stocks have recently taken a bit of a back seat. Since Dec. 22, which marked the resumption of an ongoing rally, the S&P 500 is up 1.3% and the Industrial Select Sector SPDR Fund (XLI), for example, is up just 0.6%.
Investors may be looking now for low-volatility income strategies found in many defensive sectors within the equity market, as bond yields offer nothing exciting.
Write to Jacob Sonenshine at firstname.lastname@example.org