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S&P 500, Dow hit all-time highs even as COVID-19 cases spike

Two of the top indicators of U.S. stocks closed at record highs Nov. 24, continuing a rally driven by coronavirus vaccine developments and reduced political uncertainty, even as new coronavirus cases surge across the U.S.

The S&P 500 settled at 3,635.41, up 1.62% from Nov. 23 and about 0.2% higher than the previous record, set Nov. 16. The Dow closed at 30,046.24, up 1.54%. It was the 30-stock index's first settlement above 30,000. The Dow closed 0.3% above its previous all-time high, also reached Nov. 16. The tech-heavy Nasdaq closed at 12,036.75, up 1.31% on the day and just below its all-time high, set Sept. 2.

Equity analysts pointed to enthusiasm over a spate of positive vaccine news, signs of a smoother U.S. presidential transition after the U.S. General Services Administration granted President-elect Joe Biden access to federal resources, and the nomination of former Federal Reserve Chair Janet Yellen to lead the Treasury Department as factors behind the rally.

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Since Pfizer Inc. and BioNTech SE announced Nov. 9 that a phase 3 trial showed that its investigation coronavirus vaccine was more than 90% effective, the S&P 500 has climbed about 3.6%. The previous peak came Nov. 16 after Moderna Inc. announced its own vaccine results. The S&P 500 jumped after AstraZeneca PLC and Oxford University on Nov. 23 announced positive results from their own vaccine trials. The large-cap index is up about 11.2% on the month.

The Nasdaq rose only about 1.2% from Nov. 6 through Nov. 24 amid a rotation away from many of the stocks that have most benefitted from pandemic-related economic effects, while small-cap stocks have surged, with the Russell 2000 and S&P 600 up 12.4% and 15.5%, respectively, over the same stretch.

Still, some analysts said the rally could be limited by skyrocketing coronavirus cases and increasing fears that the pandemic's worst economic impact may be yet to come.

"While a winter wave has been expected, it may be shaping up to be more severe than some may have expected," said Craig Erlam, a senior market analyst with OANDA. "It's not yet holding back these markets too much, but it has the potential to."

New U.S. coronavirus cases have jumped dramatically, breaking new records almost daily. As of Nov. 24, there was an average of 173,165 cases per day over the past week, an increase of 49% from the average two weeks earlier, according to a New York Times database.

The spike in cases has triggered more lockdown measures across the country, which will cause the U.S. economy to contract at an annualized rate of 1.0% during a "grim" winter in early 2021, economists with JPMorgan projected in a Nov. 20 note.

"Stocks always climb the wall of worry," said Matt Weller, global head of research with GAIN Capital. "With ample monetary stimulus, pent-up demand galore, the prospect of more fiscal stimulus and a vaccine rolling out in the first half of 2021, the upcoming long winter of worsening COVID numbers and associated economic restrictions are the last major worry for markets to navigate."

There is still 6% upside for the S&P 500 by the end of 2020, said Savita Subramanian, an equity and quant strategist with Bank of America Securities, but a lot of the optimism around a vaccine and economic recovery is already priced into the market.

"Vaccine execution risk, delayed fiscal stimulus and longer lockdowns are risks," Subramanian wrote.