The maxim "don't fight the Fed!" rang true on Tuesday.
Positive momentum started yesterday by the Federal Reserve's bond-buying announcement continued after Fed Chair Jerome Powell told senators that "some form of support" would be "appropriate," implying that Congress should continue to provide financial help to ensure a recovery. A Bloomberg report saying the Trump administration was mulling a $1 trillion infrastructure package added to the optimism.
Health care was among the day's top sectors, with Dow components Merck (MRK, +4.0%) and UnitedHealth (UNH, +2.4%) helping to lead the industrial average 2.0% higher to 26,289, and the S&P 500 1.9% higher to 3,124.
Dow components Apple (AAPL, +2.7%) and Microsoft (MSFT, +2.5%) also propelled the Nasdaq (+1.8% to 9,895), as did Zoom Video Communications (ZM, +1.5%), which finished at yet another all-time high. The small-cap Russell 2000 finished 2.3% higher, to 1,452.
Can stocks go up forever? Of course not. But the government is proving an effective aid to investors right now. Thus, as long as the Fed and Congress appear willing to spend their way out of a recovery, it's impossible to rule out the idea of stocks grinding higher even in the face of worsening COVID-19 data in many parts of the country.
"Our view since the April FOMC meeting has been to follow the Fed because they print the money and are actually putting it to work," says Canaccord Genuity equity strategist Tony Dwyer. "We want to add risk as the consolidation plays out. Market swings have been at lightning speed and we believe many of the uncertainties that typically surround a crisis are on the path to recovery."
But be mindful of how you choose to try to ride the trend higher.
Airline stocks and retail stocks have the potential for outsized gains (because they're starting from more depressed levels), but government help can only do so much for these fields -- real recovery requires people to be more comfortable with leaving their homes.
Many technology stocks, however, are surviving and even thriving, and the sector offers a wealth of options. Hedge funds' most widely held blue chips are crowded at the top with tech names, but these 14 lesser-known plays offer considerable upside too. And don't discount the coronavirus effect, which should continue long after the COVID-19 threat subsides. Several tech stocks that enjoyed a lift during the early stages of the pandemic are still charging higher of late, including a few that have recently set new all-time highs.
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Copyright 2020 The Kiplinger Washington Editors