Do I hear 20,000? 21,000? That’s the subject Wall Street investors are starting to consider after post election euphoria has stretched equity markets deeper into the record books since Nov. 8. Does anyone really know what is happening in the the Dow Jones.
The Dow Jones Industrial Average has scored 14 record finishes since Donald Trump’s election, putting the blue-chip gauge near the psychologically significant level of 20,000. Other stock benchmarks, including the Nasdaq Composite Index and Russell 2000 index finished at records as well.
Assuming the indexes continue to lurch forward into the next week or two, that puts the gauge on pace to log the fastest 1,000-point rally since the Dow moved from 10,000 to 11,000 in from March 29, 1999, to May 3, 1999 — a 24-day trading day span, according to Dow Jones data.The Dow closed above 19,000 on Nov. 22 and took 483 trading days to span the 1,000-point bridge.
The broad-based rally has been supported by the expectation that Trump will unleash a raft of pro-business policies, including a rollback of regulations, tax cuts and fiscal spending. Signs that the market is already on a solid economic footing relative to other economies across the globe and comparatively better quarterly results from U.S. corporations isn’t hurting.
Trump won’t be a ‘dangerous’ president, says Goldman’s CEO Investors appear to be buying into those prospects, which are far from a reality.
Of course, there are a lot of signs that the market is getting overheated. Wall Street’s fear gauge, the CBOE Volatility Index (VIX) a measure of the market’s expectation of volatility, is hovering around 12, a level that suggests investors may be growing complacent and are ill-prepared for a shock to the system. Levels above 12 imply the expectation for even more volatility and some argue that on a rolling basis, stocks are getting pricey and are due for a reversal. We have seen time when the market has gone crazy high and took terrible crashes, such as in the 1920’s.
The CAPE ratio, which compares stock prices with earnings over the past 10 years, shows that the S&P 500, which closed at a record, is trading at 27.9 times, citing Nobel laureate economist, Robert Shiller. By that measure, the stock market is now flashing a bright red warning sign, implying that a crash may be imminent in the broad-market S&P 500 index (SPX), but even Shiller, who appeared on CNBC to discuss his CAPE ratio, said this metric may be off because of Trump. He views the real estate mogul as an unprecedented candidate whose policy impact could elude models.“You have to look. We just got a new president who wants to cut corporate-profit taxes and he wants to ease regulations. My own indicators are a little bit less effective in this environment,” Shiller said.
Even after the Federal Reserve’s increase in the interest the market has manage to maintain its numbers but the 20,000 mark still has not not been reached. Does this bouncing back in forth mean a drop is near. Who knows everything seems to waiting for Trump to begin his Presidency.
“Ultimately, Dow 20,000 is just another big round number,” said John Canally, Chief Economic Strategist for LPL Financial. “Over the long run stock prices are driving by earnings of the companies in the stock market. If the economy is sound, if the Fed is doing its job and the politicians don’t get in the way, corporate earnings should matter more to investors than ‘the big round numbers.