Dow Jones industrial average slipped, but market is bullish on more stimulus

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The three major US stock indexes were mixed on Thursday, but below the surface there was strength in the market.

the

Dow Jones Industrial Average

fell 68.95 points, or 0.22%, to close at 30,991.52. the

S&P 500

slipped 14.30 points, or 0.38%, to end at 3,795.54, and the

Nasdaq composite

fell 16.31 points, or 0.12%, to close at 13,112.64. The oil refiner was the biggest winner of the S&P 500

Holly Frontier

(ticker: HFC), with stocks soaring by 11%.

President-elect Joe Biden is expected to speak in detail tonight about the fiscal stimulus. Billions of dollars in fiscal stimulus have already supported consumer economies, and a few more trillions of dollars would add to the pent-up demand that could be released when the Covid-19 vaccines are widely distributed.

Investors remain optimistic about the path of the economy. While the major indexes were down, stocks most sensitive to perceived changes in the economy, like value and small caps, rose. The market capitalization-weighted S&P 500 was dragged down by mega-tech stocks, notably

Apple

(AAPL) and

Amazon.com

(AMZN), which fell by 1.5% and 1.2% respectively.

But the

Vanguard S&P 500 Value Index Fund ETF

(VOOV) rose 0.37%. the

Russell 2000,

a small cap index, rose 2%. Not only are small caps expected to rebound around twice as much as large caps in 2021, small caps are also expected to trade at a valuation haircut to larger ones, giving small caps even higher upside potential.

The average Russell 2000 component share always trades at a futures price / earnings multiple roughly in line with the average share on the

Russell 1000,

which includes some S&P 500 stocks, according to figures from UBS Wealth Management. Historically, the average P / E before Russell 2000 multiple has a slight premium over that of the Russell 1000, suggesting that there is some advantage for smaller caps in the former.

“I’m much happier to be overweight small caps right now,” said Jason Pride, director of private wealth investments at Glenmede. Barron’s.

Another signal of optimism about the economy: the

Invesco S&P 500 Equal Weight ETF

(RSP), which reflects the size of the rally in equities across all sectors, rose 0.36%.

Investors see “more of the commitment to the stimulus and the scale of the stimulus that will be introduced and most likely passed and the fact that it appears to have bipartisan support,” said Brian Price, head of the investment management for Commonwealth Financial Network. Barron’s.

A report by Evercore strategists noted that the reasons Treasury yields rose was because Biden’s stimulus package could total $ 2 trillion, more than some recent calls for $ 1 trillion. Rising yields on Treasury bills generally reflect rising inflation and rising economic expectations.

On the downside, the first jobless claims were worse than expected, although investors ignored this. Claims rose to 965,000 for last week, more than the consensus average of 800,000, and more than the revised total of 784,000 from the previous week, as lockdowns persisted.

“At one point, tough jobs like we saw this morning may serve as a tinder for those calling for a correction, but the market seems to be of the view that the light at the end of the tunnel remains in sight, despite laborious deployment of vaccination. . Mike Loewengart, head of investment strategy at E * Trade, wrote in remarks emailed to the media.

Write to Jacob Sonenshine at [email protected]