‘Exuberant’ ASX rises after Dow Jones hits 30,000 points, but risks COVID ‘correction’

ASX jumps on COVID-19 vaccine euphoria, Dow Jones hits 30,000-point record
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‘Exuberant’ ASX rises after Dow Jones hits 30,000 points, but risks COVID ‘correction’

Australian shares have closed at a fresh nine-month high after Wall Street’s industrial index hit a new record overnight on bets of a quick economic rebound.

The Dow Jones index topped 30,000 points for the first time, due to COVID-19 vaccine euphoria and the removal of political uncertainty after US President Donald Trump authorised a transition of power to Joe Biden (without explicitly conceding).

Locally, the ASX 200 finished 39 points (+0.6pc) higher at 6,683 points.

The benchmark index has clawed its way back to where it was on January 1. But it would need to hit 7,197 points to surpass its record intraday high (reached on February 20).

Stock markets have made a rapid recovery despite the global economy struggling to deal with a pandemic-driven recession.

Investors are overlooking the short-term pain, hoping that coronavirus vaccines will be rolled out next year, said InvestSmart’s chief investment officer Evan Lucas.

“When we look at fundamentals — the price of the equity market and their earnings — they’re not connected. There’s no doubt about that.”

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Mr Lucas said investors are counting on a COVID vaccine to be available by around June, to achieve “herd immunity”, “more stable employment” and a recovery for corporate earnings.

If that doesn’t happen by mid-next year, he expects it “may be a trigger for a possible pullback or correction”.

Hardest hit sectors rebound

Travel, casino and energy stocks suffered the steepest losses during the pandemic, but they rebounded sharply on Wednesday on hope that a vaccine will rescue those industries.

Whitehaven Coal (+10.7pc), Webjet (+7.1pc), Flight Centre (+8.9pc), Crown Resorts (+5.4pc) and Worley (+5pc) were some of today’s best performers.

Banks and miners also drove the market higher, like Westpac (+3pc), ANZ (+3.2pc), BHP (+2.4pc) and Fortescue Metals (+1.9pc)

Technology and healthcare, which have performed strongly in the past few months, were today’s worst performers.

Shares in Mesoblast (-7.2pc), Pro Medicus (-4.9pc), Appen (-5.4pc), Zip Co (-6.4pc) and Afterpay (-5.9pc) experienced steep falls.

Aussie dollar jumps to three-month high

Earlier today, the Australian dollar jumped to its highest level since early September (above 73.65 US cents.

However, it has since retreated (-0.3pc) to 73.3 US cents.

“The US dollar has lost some of its safe-haven appeal amid the solid and broad improvement in risk appetite,” said NAB foreign exchange strategist Rodrigo Catril.

Commodity prices were also higher, with iron ore rising (+0.1pc) to $US127.42 a tonne, close to a six-year high.

“Investors are getting optimistic about the coming six months,” said Mike Zigmont, head of trading and research at Harvest Volatility Management in New York.

Recent data suggesting a COVID-19 vaccine could be available before the end of the year has put the US market on course for its best November ever.

Sentiment this week was also boosted by reports that US president-elect Joe Biden planned to nominate former Federal Reserve chair Janet Yellen as Treasury secretary, which could shift the focus heavily toward efforts to tackle growing economic inequality.

Excessive optimism?

On Wall Street, the Dow Jones index closed 455 points (+1.5pc) higher at 30,046 — driven by a surge in the hardest hit sectors (financials, materials, energy and industrials).

While the 30,000 mark represents a psychological milestone, it means little to professional investors.


The S&P 500 also lifted (+1.6pc) to a record high of 3,635, and the tech-heavy Nasdaq rose (+1.3pc) to 12,037 points.

Electric-car maker Tesla Inc jumped 6.4 per cent to boost its market value to over $US500 billion, as investors lapped up its shares in the run-up to its addition to the S&P 500 index.

Still, with coronavirus cases surging by the day and millions of Americans still unemployed, some traders suggested the US stock market could see a sharp pullback in the next few weeks.

“We are positioning for a 20 per cent stock market pullback between now and the 2021 presidential inauguration,” said James McDonald, chief executive officer of Hercules Investments in Los Angeles.

European markets were also optimistic, with Britain’s FSTE rising (+1.6pc) to 6,432, and Germany’s DAX lifting (+1.3pc) to 13,292 points.

Bitcoin and oil surge, while gold sinks

For the first time in three years, bitcoin has rebounded above $US19,000.

The world’s biggest cryptocurrency is a whisker away from its record high (just under $US20,000) — a level it last reached in December 2017, before crashing spectacularly (below $US3,300) that same month.

Analysts say the bitcoin rally is being driven by higher demand for riskier assets, as governments and central banks pump trillions of dollars worth of stimulus into the global economy to counter the economic damage of COVID-19.

There is also a perception, among true believers, that cryptocurrencies are resistant to inflation and will become a mainstream payment method.

Since January, bitcoin has surged 160 per cent as payment giants like PayPal now allow its users, in the United States, to buy, sell and hold cryptocurrencies.

However, bitcoin’s 12-year history has been peppered with vertiginous gains and equally sharp drops.

Its markets and price discovery is highly opaque compared with traditional assets such as stocks or bonds,

With investors feeling more bullish towards risk assets, the price of gold dipped to a four-month low.

The precious metal’s spot price dropped (-1.8pc) to $US1,803.60 an ounce.

On the flip side, oil prices surged to their highest levels since March on increased bets the global economy, and fuel demand, will rebound.

Brent crude rose (+3.9pc) to $US47.86 a barrel, while West Texas crude soared (+4.2pc) to $US44.85 a barrel.


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