It’s official: Dow records best monthly gains since 1987 but what’s next?

Written by: Jayson Derrick
December 1, 2020
  • The Dow Jones Industrial Average ended November with its best monthly gain since 1987.
  • The next catalyst that can move markets is Fed Chief Powell's testimony.
  • Some analysts believe any near-term selloff is a buying opportunity.

The Dow Jones Industrial Average lost nearly 300 points on Monday but despite the 0.9% decline the index recorded its best monthly gain since January 1987. But is the macro environment supportive enough to warrant further gains?

Economist El-Erian: watch the Fed

Mohamed El-Erian is a chief economic advisor at Allianz and he said that the next macro event to watch out for is Federal Reserve Chair Jerome Powell’s testimony, according to CNBC.

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Investors, analysts, and economists will be paying attention to what Powell says during this week’s testimony, he said. In fact, everyone will be focused nearly exclusively on what the Fed boss says and does on Tuesday and Wednesday.

Recent market gains were justified amid encouraging vaccine announcements, continued central bank support, and investor confidence driven by “more money coming in” to the markets.

“So we are going to, again, put aside all these other things,” CNBC quoted him as saying. “They’re not going to have much of a market impact.”

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Market Strategist Liz Young: Buy a dip

As 2020 comes to an end in four weeks, the macro environment could throw the market a curveball, Liz Young, director of market strategy at BNY Mellon Investment Management, told CNBC.

The market could trade lower from economic data but this is “something that investors and should look through,” she said. A “wobble” sell off of 3% to 7% is possible before the start of 2021 and this should be considered a buying opportunity.

Investors need to model the macro environment three to six months out and ask if the environment will be better than it is now.

“And I think the answer to that is ‘yes’,” she said. “Once we get into 2021, the expectations are going to go up.”

Confirmation of a strengthening macro environment might not be seen until the second quarter of 2021. At that time, a “pretty healthy” market and economic recovery should be apparent to all.

Analyst Jimmy Dunne: ‘Optimistic’

The first round of vaccinations against the novel coronavirus will start “reasonably soon” and while it is unclear who gets it first, the event marks a “real positive” for markets, Piper Sandler analyst Jimmy Dunne also told CNBC.

The economic recovery in the U.S. is supported by banks and institutions being in a “much better position” compared to other crises.

“They have more capital,” he said. “They’ve been aggressive with their reserves.”: