02/01/2017
Dow Jones: Does 20,000 Really Matter?

Dow Jones: Does 20,000 Really Matter?

The Dow Jones Industrial Average is hovering around the much-discussed 20,000 point milestone, but don’t let that distract you from the factors that are determining the state of the markets.

Dow Jones: Is the ‘Trump Rally’ Maturing?

From Election Day to January 6th, the Dow surged almost 1,700 points, or 9.1%. Most of those gains were driven by investor optimism, based on new business-friendly policy proposals. Investors began pricing in stronger economic expectations and corporate earnings. At that point, according to Arbeter Investments president Mark Arbeter, the Dow was at its most “overbought” level since November 1996, so it was inevitable that profit-taking would kick in.

Goldman Sachs slowed the Dow’s climb further when, on January 9th, the first day of trading after the January 6th high point, it downgraded Coca-Cola and Procter & Gamble to “sell” recommendations, pushing the shares lower.

Since then, the Dow has surged two more times and breached 20,000. On January 25th, the Dow Jones crossed 20,000 for the first time buoyed by earnings beats by DuPont and Boeing. Another boost for the index came with Apple’s earnings beat on January 31st, fueled by strong iPhone 7 Plus demand.

Financials Wane

After Election Day, JPMorgan, Goldman Sachs, and other Dow financial shares jumped quickly. With expectations of less banking regulation, a stronger economy, and rising interest rates, banks were in the sweet spot. The rally has stalled since.

Jason Trennert of Strategas Research Partners expects the second leg of Trump-fueled trading once more specifics emerge regarding corporate tax reform and deregulation.

Imaginary Ceilings and Supports

Big round numbers catch our attention and can seem like an unbreakable ceiling. One powerful example takes us back to February 1965, when the Dow came within five points of topping 1,000 for the first time. The Dow didn’t end up closing above 1,000 until November 14th, 1972, according to S&P Dow Jones Indices. Even then, the Dow did not remain over 1,000 for good until 1982.

No matter what number the Dow sits at, be it 20,000, 10,000, or 30,000, investors should not get caught up in the hype. Instead, they should be most focused on having a well-planned, diversified portfolio and receiving sound advice from a financial planner.

For that, visit the OptiFour Integrated Wealth Management homepage today!

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