During regular trading hours on Wednesday stocks rose to record highs. But the gains were ultimately short-lived, and the major averages wound up closing in the red.
The Dow closed 105 points lower for a loss of 0.35%. The S&P 500 fell 0.8%. The Nasdaq Composite pulled back by 1.9% for its worst day since Oct. 30. The tech-heavy index also snapped a four-day winning streak.
The broader market’s move to the downside was led by the technology sector, with chip stocks in particular registering weakness.
“Today was classic sector rotation and a resumption of the mean reversion trade that began modestly in September, and is continuing into the end of the year — and we believe, for much longer,” said David Bahnsen, chief investment officer at The Bahnsen Group.
Stocks fell from their highs after Senate Majority Leader Mitch McConnell told Politico that Republicans and Democrats were “still looking for a way forward” on additional fiscal aid.
McConnell said he wants Congress to pass a coronavirus relief bill with neither legal immunity for businesses nor state and local government relief. Senate Minority Leader Chuck Schumer, D-N.Y., said McConnell’s proposal to move stimulus talks forward without state and local government aid is not in good faith.
The ongoing negotiations come as the Covid-19 crisis worsens in the U.S. But the rollout of Pfizer’s vaccine in the U.K., which began on Tuesday, has spurred some optimism. And some Wall Street strategists believe a widely available vaccine will lift stocks to new highs in 2021.
“Equities are facing one of the best backdrops for sustained gains next year,” JPMorgan said in a note to clients Wednesday. “We expect markets to be driven by recovery from the COVID-19 crisis at the back of highly effective vaccines and continued extraordinary monetary and fiscal support,” the firm added. JPMorgan’s S&P 500 target for 2021 is 4,400, which implies a nearly 20% gain from the benchmark average’s Wednesday closing price.
On the flip side, Commerce Street Capital CEO Dory Wiley believes caution is warranted. He pointed to 90% of stocks on the NYSE trading above their 200-day moving average as indication that valuations might be stretched.
“Timing the market is not always well advised and paring back can miss out on some gains the next two months, but after such good returns in clearly a terrible fundamentals year, I think taking some profits and moving to cash, not bonds, makes some sense here,” Wiley said.