U.S. stocks fluctuated on Thursday, a day after major averages reached new highs, as the market’s recent strong performance fueled valuation concerns.
The Dow Jones Industrial Average dipped 20 points. The S&P 500 was flat. The Nasdaq Composite climbed 0.1% and touched a new all-time high at the open.
Equities closed at record highs in the previous session as President Joe Biden was sworn into office, ushering in hope that an improved vaccine rollout will ensure a smoother and faster reopening. However, the big run-up also lifted valuations to historically high levels, making investors cautious about a potential pullback ahead.
“The most recent rally in the stock market should see (at least) a sideways breather over the very-near-term,” Matt Maley, chief market strategist ay Miller Tabak, said in an email. “The breadth in the market place was quite poor during the rally.”
The S&P 500 is currently trading at 22.8 times forward earnings, near levels during the 2000 dotcom bubble, according to FactSet. The broad equity benchmark is also 16% above the 200-day moving average, twice the normal levels even in bull markets.
Major U.S. airline United fell 5.7% after missing on the top and bottom lines of its quarterly earnings released Wednesday night. The airline warned sales would continue to suffer in the early part of 2021 as the coronavirus pandemic drags on.
Thursday’s muted action came despite a better-than-expected reading on jobless claims. First-time claims for unemployment insurance totaled 900,000 for the week ended Jan. 16, lower than an estimate of 925,000 according to economists surveyed by Dow Jones.
Still, some on Wall Street are optimistic that Biden’s plans to combat the pandemic will give the stock market a further boost through 2021.
Biden released details of his Covid plan on his first full day in office, including 10 executive orders and his intent to use the Defense Production Act to ramp up protective equipment production. Biden will seek to accelerate the rollout of vaccines by providing more local and state funding, creating more vaccination sites and launching a national education campaign.
“We see the pace of vaccinations as a key driver of equities through 2021, similar to how shifts in mobility and Covid cases drove equities in 2020,” Keith Parker, head of equity strategy at UBS, said in a note. “Removing bottlenecks for administering doses would present an upside case near-term.”
Biden was sworn in as the 46th U.S. president on Wednesday, succeeding former President Donald Trump. During an inaugural address in which he called on Americans to reject efforts to sow division and pledged to work for the voters who did not support him, Biden declared, “Democracy has prevailed.”
Along with the Covid response plan released Thursday, investors are also watching eagerly if Biden can get his proposed $1.9 trillion coronavirus relief bill through Congress.
