- Dow Jones Industrial Average (DJIA) futures rocket higher for a second day of strong gains.
- The rally is no longer led by mega tech companies, but by cyclicals, aerospace, travel, and small-caps.
- It’s a broader, more healthy rally which implies a stronger recovery.
The U.S. stock market is preparing for another explosive open on Wednesday. Dow Jones Industrial Average (DJIA) futures point to another triple-digit gain.
And this time it’s for real. This isn’t the big-tech bounce like we saw drive the markets through April and May. This is a broad rally across risk-assets, commodities, and beat-up travel stocks.
Just look at the biggest risers across the board in premarket trading today:
- Norwegian Cruise +12%
- Carnival +9%
- Macy’s +9%
- Tractor Supply Co. +8.7%
- Royal Caribbean +8%
- United Airlines +8%
- Simon Property +5%
Other big risers this morning include Park Hotels, Boeing, and General Electric. This is a bet on a recovery for travel, offices, agriculture, aerospace, and commodities. It’s a much healthier swell compared to the last two months which was powered by five tech stocks.
Dow futures rage on higher
Dow Jones Industrial Average (DJIA) futures point to another strong day on Wall Street. Source: Yahoo Finance
Stock market broadens out
Since the March 23rd bottom, the S&P 500 powered higher on the back of Amazon, Microsoft, Facebook, Google, Apple, and Netflix. This was a precarious rally, concentrated in a just a handful of stocks. Never a good sign.
But look what happened during yesterday’s explosive trading session. The biggest winners in the Dow Jones were 3M, Caterpillar, Goldman Sachs, and Raytheon. The biggest losers? Apple and Microsoft.
Industrials, financials, defense and aerospace led the way while big tech faded. That’s a good sign for a broader recovery. As Allianz’s chief economic advisor Mohamed El-Erian explained yesterday:
The risk on is across the board. It’s not just stocks, it’s other risk assets, it’s fixed income, it’s currencies and it’s commodities.
This Dow rally is broader and stronger
The S&P 500 recently became more concentrated than any time since the 1970s. Five stocks made up a whopping 25% of the index as investors fled to big-balance sheet safety.
The S&P 500 recently became more concentrated than anytime in the last 50 years. Source: Bank of America / Bloomberg
Slowly but surely, that money is flowing into other corners of the market. It may be too early to declare a full recovery, but it’s a positive sign.
The inflows into exchange-traded funds (ETFs) were telling yesterday. Among the biggest gainers was the U.S. Global Jets ETF, which tracks airlines (+11.8%). The Vanguard Financials ETF, which tracks banks, was up 5.75% and the DFEN aerospace ETF jumped 14%.
Not everyone is bullish up here
Despite the broadening out of the market, JP Morgan remains cautious. In a note issued yesterday, analysts warn that stocks could run out of momentum over the summer.
Investors should not overstay their welcome in the bounce, in our view, where we reiterate that it is likely to peter out as we enter summer.
George Gero at RBC Wealth Management also struck a defensive tone. He believes the ongoing tension between Trump and China may put a cap on a full recovery. Especially going into the election cycle in November.
I think we’re going to give back a little bit soon as more political headlines emerge and people start thinking about problems with China, problems in Europe, problems everywhere the investor looks.
The China problem reared its ugly head at the end of yesterday’s trading session. Trump’s threat to impose sanctions on Chinese companies knocked the wind out of the market’s momentum in the last hour of trading.
Disclaimer: The opinions expressed in this article reflect the author’s opinion and should not be considered investment advice from CCN.com. The author holds no investment position in the assets mentioned above.
This article was edited by Samburaj Das.