US stocks hit fresh highs on Tuesday led by transportation, as investors solidified their bets on an improving economy under the Trump administration.
The benchmark S&P 500, Dow Jones Industrial Average and Nasdaq Composite each clinched their best daily performances since the day before the US election, with the first two also setting new records.
Stock markets have been invigorated by the possibility of a wave of government spending, tax cuts and a curbed regulatory environment under Donald Trump. The S&P 500 rose 1.3 per cent to 2,241.35 while the Dow added 1.6 per cent and Nasdaq gained 1.1 per cent.
“The near-term direction of the market seems pretty clear to everyone — it is higher,” said Nicholas Colas, chief market strategist at Convergex. “There is an amazing amount of enthusiasm for what is possible and no negative catalyst. This is the time of year you get that Santa Claus rally. I don’t think it’s over.”
The Dow Jones Transportation Index rose more than 2.5 per cent to a new high. The health of the transport sector is often seen as a barometer of underlying economic activity.
Jack Ablin, chief investment officer of BMO Wealth, said. “If the transports are busy — if there are a lot of goods moving around on trains and planes — that’s a good signal that the economy is busy.”
Dow theorists believe that new highs on the Dow transportation index and the Dow Jones Industrial Average — the blue-chip index made up of 30 companies such as Goldman Sachs, Nike and Walt Disney— are a bullish signal for the market and a time to buy. However, the Dow has climbed 9.7 per cent since November 2014, the last time the two indices hit records on the same day, while the transport index has risen just 2 per cent over the same period.
The gains on Wednesday accelerated more than half way through the trading day after a flurry of activity in the futures market. In 60 seconds, nearly 50,000 S&P 500 December e-mini futures were traded, more than three times the level of activity per minute earlier in the day.
There is an amazing amount of enthusiasm for what is possible and no negative catalyst. This is the time of year you get that Santa Claus rally. I don’t think it’s over
Jonathan Corpina, senior managing partner of broker dealer Meridian Equity Partners, said a $3bn stock-buying programme covering 1,500 equities also hit the market around the same time, buoying activity and the benchmark indices.
“Someone is making a big bet,” he said, adding that the rally was probably extended by short covering. “There were no political headlines, no economic headlines. There was nothing on the calendar that would make someone want to jump into this.”
JJ Kinahan, chief market strategist at TD Ameritrade, cited 2,219 as a key resistance level for both the cash and futures market. “Once we broke through that, there was nothing but buyers,” he said.
The day’s gains came in spite of a pullback for some drugmakers after comments from Mr Trump hit post-election hopes of a lighter stance on the rising price of medicine.
Hillary Clinton had made the issue a key pillar of her policy platform. US biotechnology shares suffered the sharpest sell-off in more than a month with the Nasdaq biotech index down nearly 5 per cent at one point.
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