The Dow Jones Industrial Average has topped the 30,000 mark for the first time as financial markets around the world rally amid hopes for a coronavirus vaccine and smooth transition to a Joe Biden presidency.
The landmark for the Wall Street market comes as investors bet rapid medical advances will bring the Covid outbreak to an earlier end than feared, paving the way for a swift economic rebound next year as business activity returns closer to normal and tough government restrictions are relaxed.
The mood of optimism spread across the world on Wednesday with stocks in Asia gaining 0.45%. In Japan, the Nikkei rose 1.7% to a new 29-year high. The FTSE100 is due to open up 0.4% in London on Wednesday morning.
The rally also comes after the US General Services Administration (GSA) declared Biden the apparent winner of the US election, clearing the way for the formal transition from Donald Trump’s administration to begin, ending weeks of uncertainty and delay.
Nevertheless, Trump was quick to claim credit for the rally. “That’s a sacred number, 30,000. Nobody thought they’d ever see it,” he said at an extremely brief press conference. “That’s the 48th time we have broken records during the Trump administration.”
He went on to congratulate his administration and “most importantly, the people of our country”.
Despite soaring coronavirus infections around the world, the Dow rallied by over 450 points – about 1.5% – on Tuesday, closing above 30,000 for the first time.
Other major stock markets also rallied. Extending a surge in recent weeks after big pharmaceutical companies reported promising developments from Covid vaccination trials, the FTSE 100 gained by about 1.6%, rising by 100 points to end the day at 6,432.
The leading index of UK company shares recorded the best week since April earlier this month, after Pfizer/BioNTech said its Covid vaccine was 90% effective in protecting people from transmission of the virus in global trials.
The UK’s blue-chip index remains more than 1,000 points down from the start of the year, reflecting the scale of the Covid recession in the UK. In contrast, the US stock markets has been buoyed by big gains for US tech firms which have benefited from the shift to online working and shopping during the pandemic.
Vaccine updates from Oxford University and AstraZeneca have further extended the rally this week amid hopes of a swift economic recovery next year. However, the stock market value of the UK’s biggest pharmaceutical firm have dropped by more than £4bn since the announcement on Monday, after reporting lower efficacy rates than other major vaccine producers.
European markets also extended the rally on Tuesday, with France’s CAC 40 and Germany’s DAX up by more than 1.2% on Tuesday. The price of oil jumped amid speculation that a swift economic recovery could fuel increased energy demand around the globe, with the US oil price hitting $45 per barrel for the first time since March.
What is the FTSE 100?
The FTSE 100 is an index of the 100 largest companies listed on the London Stock Exchange measured by their market value, or capitalisation. The total value of the companies that comprise the FTSE 100, often referred to as “blue chip” businesses, currently stands at about two trillion pounds; about 80% of the value of all publicly listed companies in the UK. The FTSE 100 was founded in 1984 as a joint venture between the Financial Times and LSE.
What are the benefits of being in the FTSE 100?
London is one of the world’s major financial centres and there are significant benefits attached to the status of being included on the capital’s main market. Benefits for blue chip companies include increased profile, particularly internationally.
It is still regarded by many as a proxy for the health of business in Britain although, in fact, the FTSE 250 index is more representative of domestic-focused companies, as a about 75% of FTSE 100 company earnings come from overseas.
Gaining a place in the FTSE 100 can improve demand for a company’s shares as some investors are more comfortable investing in companies in the blue chip index. It can also help with raising capital.
Many funds are linked to the FTSE 100. These passive, low-cost investments, known as tracker or index funds, do not use highly-paid fund managers to pick stocks but invest instead in the constituents of the main stock market index, thus tracking its performance.
Why would a company be ejected from the FTSE 100?
A falling share price is the main reason for a company being demoted from the index, as this will reduce its value. Companies are also removed from the index when they have been taken over and no longer have a separate stock market listing.
I don’t own any shares – why does the FTSE 100 matter to me?
The FTSE 100 affects most people even if they don’t directly invest themselves, as pension funds are often linked to the main market and its performance directly affects returns.
What are the rules under which companies get promoted and demoted in each quarterly review?
There are a number of rules in place to ensure that there isn’t a constant turnover of businesses exiting and entering the main index on a quarterly basis.
Any company outside the FTSE 100 which has a market capitalisation equal to 90th position or better in the main market is guaranteed promotion.
Conversely, any company which ranks it 111th position or lower is automatically demoted. Depending on how many companies automatically fit these criteria at the time of each quarterly review, the main market is “rebalanced” to reflect the top 100 listed companies total.
Russ Mould, investment director at the Manchester-based stockbroker AJ Bell, said: “Oil acts as an economic bellwether and the commodity has been on a tear for the past month, rising by more than 20% in value as markets start to become more optimistic about economic activity amid positive vaccine news.”
The gains come as investors bet that the lingering political uncertainty from the US election result is gradually lifting, after the GSA kickstarted the formal transition of power for Biden to take over as president in January.
It comes in stark contrast to claims made by Trump that a Biden victory would cause a stock market crash. With hopes of a smooth exchange of power, Covid vaccination programme and swift economic rebound, the benchmark S&P 500 is also on course for its best November since 1980.
Analysts said there were rising hopes that the next administration could get to grips with the Covid-19 pandemic, drive the economic recovery, and push through a new stimulus package to reboot growth in the world’s largest economy. Investors are also cheered that Janet Yellen, the former head of the US Federal Reserve, is in line to become the next US Treasury secretary.
Joshua Mahony, senior market analyst at the financial trading firm IG, said: “With the economic data improving, a vaccine on the way, and Biden-led push for more stimulus on the horizon, there are plenty of reasons to be optimistic for the months ahead.”