The S&P 500 booked its longest stretch of gains in about 16 months Monday, as investors monitored signs that a long-awaited rotation on Wall Street into more economically sensitive cyclical stocks could be brewing, but at the expense of their high-flying counterparts.
Investors also focused on the significance of President Donald Trump’s weekend signing of executive orders extending some elements of coronavirus relief. The measures face likely legal hurdles and questions about their effectiveness, but the act may spur further talks among lawmakers.
Market participants also took stock of U.S.-China tensions.
How did major benchmarks fare?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.66% closed 357.96 points higher, or 1.3%, to 27,791.44, booking its seventh straight day of gains. The S&P 500 /zigman2/quotes/210599714/realtime SPX +0.74% added 9.19 points, or 0.3%, finishing at 3,360.47, within 1% of its Feb. 19 closing record of 3,386.15. It also clinched its seventh straight day of advances, its longest streak of gains since April 2019, according to Dow Jones Market Data. The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +0.88% retreated 42.63 points, or 0.4%, to end at 10,968.36.
The Dow Jones Transportation Average /zigman2/quotes/210598063/realtime DJT +1.39% rose 288.56 points, or 2.7%, to finish at 10,864.90, extending its wins streak to nine sessions in a row, its longest string of gains since January 2018, according to Dow Jones Market Data.
Stocks scored gains last week, with the Dow advancing 3.8% to 27,433.48, and the S&P 500 posting a weekly rise of 2.5% to 3,351.28, The Nasdaq gained 2.5% to finish at 11,010.98. The Nasdaq edged lower on Friday after hitting a series of record finishes that propelled it above the 11,000 milestone.
What drove the market?
Monday trading showed signs of a rotation away from high-growth stocks in the tech sector to more economically sensitive cyclical companies, a trend that has been subject to fits and starts over recent weeks.
“As the summer COVID-19 spike wanes, investors are more inclined to view the economic recovery as real. That could mean the recent move toward cyclical stocks is real and sustainable for the first time since the pandemic began,” said James Meyer, chief investment officer at Tower Bridge Advisors.
Still, investors say it is unclear how far any nascent rally in cyclical companies might run, with the coronavirus still an obstacle that is weighing on the U.S. economic recovery and the feasibility of new fiscal stimulus measures announced by the Trump administration in question.
The U.S. reached another dire milestone on Monday as new COVID-19 cases topped 5 million, more than one-quarter of the global total of nearly 20 million cases.
Uneven efforts within the U.S. to contain the coronavirus come as the White House and Democratic lawmakers failed last week to come to an agreement on a new round of pandemic aid. In response, Trump on Saturday signed executive orders that aim to pause the collection of payroll taxes, provide help on rent, assist with student-loan payments and extend a portion of additional unemployment benefits that had lapsed at the end of last month. The measures are almost certain to face legal challenges and logistical hurdles.
Specifically, one order authorizes states to pay $400 a week in additional unemployment benefits, with 75% of the funding coming from the federal government, versus the $600 in additional benefits that had expired at the end of July, which has been credited with helping borrowers and lenders, thus far, avoid a wave of consumer defaults.
“Executive orders that spend money, or presumably cut taxes are fraught with peril,” said Steven Skancke, chief economic adviser at Keel Point, and a former White House National Security Council and U.S. Treasury Department staffer.
“To be sure, there have been efforts to try to do that,” Skancke said, pointing to efforts by the Nixon administration to use line-item vetoes over spending he disagreed with from a policy standpoint. “All of that was overturned in the courts,” he said, adding that the precedent doesn’t bode well for Trump’s efforts to override powers of Congress to tax and spend.