The NASDAQ hit a legendary milestone, touching 14,000 as vaccines pump optimism in the markets.
Investors were looking for a defensive asset in a low-interest-rate environment that can appreciate risk-off environments amidst the Coronavirus Pandemic. Investors found that in tech stocks, they showed their ability to generate pure cashflow during the Pandemic's peak.
Stocks like Facebook, Google, Netflix, and Amazon were able to continue to beat estimates while the bulk of the world was in lockdown. This became an overcrowded and popular trade amongst institutions and many retail traders. However, many are questioning whether they still justify the hefty premiums they gained during the global lockdown. Facebook currently trades at 26 times earnings, Google at 35.5x, Netflix at an astonishing 91.5x earnings, and Amazon at 78x earnings.
With the Federal Reserve continuing their $120 Billion buyback scheme, investors are now looking at the progress of President Joe Biden's $1.9 Trillion Stimulus Plan, bolstering the growth in the U.S labour market and the U.S economy. Matthias Scheiber, global head of portfolio management at Wells Fargo, stated that equities were driven by accommodative monetary policies and optimism on fiscal stimulus. However, analysts warn that this stimulus bill will have to be paid somehow, which will likely come from a higher corporate tax rate.
Luca Paolini, Chief Strategist at Pictet Asset Management, stated that "With the additional risks of corporate taxation, not only in the U.S but also in Europe like the U.K – there is a debate about raising corporate tax. So, for the next year, I think the riise in earnings will be much more moderate".
With all this euphoria in Wall Street, Main Street continues to suffer. While down from its all-time highs, daily new and the seven-day average cases are still over 100,00 in the United States, crippled by the lack of infrastructure regarding the rollout in vaccines in the United States.
A combination of positive vaccine news, political certainty regarding the next President, and positive data coming from the United States edged equities to all-time highs.
The Dow Jones is sitting just above that coveted 30,000 level, which makes it up year to date by 4%. The S&P 500 is up around 11.6% for the year, with the NASDAQ up an impressive 36%.
Equity markets aren't the only markets benefiting from positive sentiment. Oil prices have reached an eight-month high, with Crude and Brent touching $46 and $48 a barrel, respectively.
One of the main factors that help push equities higher was the consistent positive vaccine news in the past couple of weeks. AstraZeneca yesterday stated that its Coronavirus vaccine's large stage trials were "highly effective" in preventing the Coronavirus. Professor Andrew Pollard, the Chief Investigator for the AstraZeneca trial, stated that "[the results] show that we have an effective vaccine that will save many lives. Excitingly that one of our dosing regimes may be around 90% effective." This is after Pfizer and Moderna reporting vaccines that have 95% efficacy.
Furthermore, there are signs that Trump is starting to accept his defeat for a second term. Markets have interpreted this as a soothing in political volatility. President Donald Trump has stated that it is "in the best interest of the country" to begin the transition to Joe Biden's future government and instructed officials to "do what needs to be done." However, Trump has still not conceded. President-Elect Joe Biden has started to assemble his government, with his latest pick, Janet Yellen, for Treasury Secretary.
Lastly, Manufacturing and Services PMI's were better than expected at 56.7 and 57.7 with a market expectation of 53 and 55.3, respectively.
Investors and Traders will be looking forward to the FOMC minutes for guidance on the Federal Reserve's opinion for the future of the American economy.