Dow rises to historic high as optimism grows for US economy

Global stocks rallied on Tuesday, pushing the Dow above 30,000 for the first time, on optimism for a smooth transition of power in the United States and measures soon to bolster the world's biggest economy.

The Dow Jones Industrial Average climbed 1.7 per cent in afternoon trading, pushing one of Wall Street’s oldest stock market indices to a new historic high. The wider S&P 500 rose 1.4 per cent to within striking distance of its record peak.

A rotation into industries that are set to benefit most from an economic recovery propelled indices higher worldwide, with the energy and financials sectors leading gains. The move marked an acceleration of a trend that began in the wake of Joe Biden’s election win earlier this month and has been accelerated by a series of positive results from trials of Covid-19 vaccines.

Presidential transition

Donald Trump's decision to allow the presidential transition to begin after weeks of delay boosted sentiment across trading desks. Indications that Mr Biden will seek to appoint Janet Yellen, the former Federal Reserve chief who is widely respected for her experience in labour economics, as his treasury secretary added to the upbeat mood.

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Analysts at Deutsche Bank said Ms Yellen would be "likely to try to closely align fiscal and monetary policy" and could quickly reverse the treasury's recent refusal to extend the Fed's emergency lending facilities.

"Yellen as treasury secretary is a huge plus for markets," said Dan Scott, chief investment officer at Vontobel Wealth Management.

“She’s highly competent and she has a long history in basically understanding what monetary policy can do for the recovery, and the limitations of monetary policy,” which should pave the way for further fiscal stimulus, he added.

Chris Ralph, chief global strategist at SJP, said Ms Yellen "will be seen as a very safe pair of hands", with Republicans more likely to be constructive in discussions about a stimulus deal, he added.

Mr Trump said late on Monday that the General Services Administration, which provides transition resources for incoming administrations, should "do what needs to be done with regard to initial protocols".

The move, while short of a full concession 20 days after the November 3rd election, marked the first break in an unprecedented effort by the White House to overturn the results.

Damaging

"If they were unable to transition through the end of this year then the policy vacuum we would've entered into could've been all the more damaging to the US economy," said Robert Rennie, global head of market strategy for Westpac.

In a brief press conference on Tuesday, Mr Trump hailed the Dow’s performance. “The stock market’s just broken 30,000,” he said, “never been broken, that number. That’s a sacred number, 30,000. Nobody thought they’d ever see it.”

Brent crude, the international oil benchmark, jumped 3.5 per cent to its highest point since March, at $47.65 a barrel, on hopes that a coronavirus vaccine might mean a gradual return to normality and rising demand.

Gold, which investors often turn to in times of uncertainty, fell 1.7 per cent to $1,806 per troy ounce. The dollar, another haven asset, slipped 0.3 per cent as measured against a basket of its peers.

In Europe, the region-wide Stoxx 600 closed up 0.9 per cent, while London's FTSE 100 rose 1.6 per cent and German's Xetra Dax climbed 1.3 per cent. In China, the CSI 300 index of Shanghai and Shenzhen-listed shares closed down 0.6 per cent, while Japan's Topix rose to its highest level in two years, climbing 2 per cent, after traders returned from a long weekend.

– Copyright The Financial Times Limited 2020