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Here's Who to Thank for the Stock Market's All-Time Highs

Tuesday was a momentous occasion for the stock market, as some of the most visible market benchmarks rose to record levels. The Dow Jones Industrial Average (DJINDICES: ^DJI) topped the 30,000 mark for the first time ever, while the S&P 500 (SNPINDEX: ^GSPC) also set a new closing high. Even the Nasdaq Composite (NASDAQINDEX: ^IXIC), which had been quicker to set new records earlier in 2020, finished just shy of its high-water mark.

Today's stock market


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Data source: Yahoo! Finance.

Yet when you look closely at how the stock market fared, a couple of sectors really stand out. Energy stocks were the best performers overall, climbing on hopes that a coming end to the coronavirus crisis could spur a return to more normal levels of energy use. But with energy now making up a relatively small portion of the overall stock market, the gains in financial stocks had even more influence in spurring investors to more optimistic viewpoints.

A crude awakening

It's easy to understand what drove energy stocks higher. Crude oil prices jumped 4% on Tuesday, flirting with the $45 per barrel level. Oil markets are looking closely at a possible recovery in demand if the COVID-19 pandemic gets resolved through recent advances in vaccine and treatment options. That lifted the Energy Select Sector SPDR (NYSEMKT: XLE) more than 5%.

Image source: Getty Images.

Players across the spectrum did well. Major oil giants got a nice boost, with ExxonMobil (NYSE: XOM) climbing 7%. Refinery stocks continued to claw back ground lost earlier in the year, with Valero Energy (NYSE: VLO) leading the way with a 4% rise. And oilfield services stocks like Halliburton (NYSE: HAL) were also up on the prospects for exploration and production companies boosting back up their activity levels and needing more materials and services in 2021 and beyond.

The major assumption behind the COVID-19 investing thesis is that when energy demand rises, it will go toward fossil fuels. That seems increasingly in question, especially with the huge rise in interest in electric vehicles and renewable energy more broadly. Nevertheless, in the short run, optimism in the oil patch could send traditional energy stocks considerably higher.

Banking on a rebound

The financial sector didn't do quite as well as energy, with the Financial Select Sector SPDR (NYSEMKT: XLF) rising 3.5%. But with financial institutions carrying much higher total market capitalizations than energy stocks right now, the gain had a bigger influence on the stock market at large.

Big banks performed the best in lifting the sector. Among retail players, Bank of America (NYSE: BAC) led the way higher with a nearly 6% gain, while JPMorgan Chase (NYSE: JPM) weighed in with a rise of nearly 5%. On the investment side, Morgan Stanley (NYSE: MS) had a healthy gain of 5.5%.

Yet there were also gains elsewhere. Insurance conglomerate Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) added to its recent run with a 2% gain, while fund giant BlackRock (NYSE: BLK) rose almost 2.5%.

Banks would benefit greatly from additional economic stimulus from the federal government, and that's looking more likely in the coming months. Meanwhile, the sector has gotten beaten down badly throughout 2020, and that has value investors chomping at the bit to reap the rewards of a bounce.

Give thanks

It's easy to look at high-profile tech stocks as driving markets higher. But when you look more closely, you'll often find pockets of strength in places you wouldn't otherwise notice. It's important for investors to keep that in mind as they look for the best investments for 2021.

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Dan Caplinger owns shares of Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short December 2020 $210 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.


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