Stocks shot out of the gate today as investors were empowered by positive vaccine news from Moderna (see below). The DJIA closed at a record high spiking 2% before giving up some of those gains, but still closing 1.6% higher. Recovery stocks like airlines, cruise companies, and oil drillers all rallied on hopes for the vaccines from Pfizer, Moderna, and others (see the latest in the chart below). Tech and stay-at-home stocks traded lower as last week's rotation spilled into this week.  

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Small cap stocks finally broke through to new records on Friday and continued that trend today. They have less exposure to the global economy than large caps, so when they are trending higher, it's a good sign that the belief in the recovery rally is strong. 

Strong economic data from China and Japan show how robust the economic recovery has been in the East. They've managed to keep the resurgence of the virus under control and many Asian and South Pacific nations formed a new trade alliance over the weekend that could shape geo-politics for the next decade.

Russell 2000 Index Years Without A New High
Chart courtesy LPL Financial.

Small Caps Join the Party

It's not a real rally until small caps join the party. They finally did on Friday as the Russell 2000 closed at its first new high since Aug. 31. It broke to yet another new high today as nearly all sectors rallied on Moderna's good vaccine news. 

The gap between new highs capped off one of the longest stretches ever without a new high for smaller U.S. stocks. The good news, according to LPL Financial, is that historically when the Russell 2000 has gone more than one full year without a new high, the future returns going out a year have been quite strong. 

U.S. small cap stocks are more domestic by nature, and seeing small caps significantly outperform large caps in the past few months could be another data point that the U.S. economy may improve next year — maybe more than what most economists expect.

S&P 500 Weighted vs Equal stock price chart

Equal Weight is Pulling its Weight

Another way of examining the strength and breadth of the recent market rally is to look at how the Equal Weight S&P 500, as seen through the RSP ETF from Invesco, has closed the gap and outperformed the market-weighted S&P 500, as seen through the SPY ETF from State Street.  

Regular readers know that the strength of the stock market through most of 2020 came from mega-cap tech stocks like Apple, Amazon, and Microsoft. However, since Pfizer's positive vaccine news a week ago, the mega-cap tech stocks have taken a back seat to recovery-related sectors like oil, transportation, financials, and manufacturing. 

The fact that the overall market keeps charging higher despite the participation of the mega-cap tech stocks shows the conviction of investors toward the overall market recovery.

UTZ, CP, UPWK stock price chart

Chipmaker Hits an All-Time High

It's been a banner year for chipmakers as semiconductor stocks have been among the market leaders through the recovery. But Utz Brands (UTZ) is a chipmaker of a different bite. 

The maker of potato chips and other snackable fare is having its best year as a public company as the munchies have increased demand for its products. 

Other stocks hitting all-time highs include Canadian Pacific (CP), the Northern rail giant, and UpWork (UPWK), the gig-economy platform operator.  

So potato chips, railroads, and a gig-economy app are making record highs, which tells you all you need to know about the breadth of this rally.