It seems like the market has been on Dow 20,000 watch for a long time. And today, the Industrials “finally” crossed that metaphoric Maginot line and closed above it.
I must say that I’m impressed with the market euphoria today. This feeling of bullish elation has been driven almost entirely by optimism.
The optimism is over the pro-growth Trump agenda, an agenda that the president has already executed on in just his first few days in office.
Hey, if I were a floor trader at the NYSE today, I’d probably be euphoric, too. We might just get some fiscal stimulus out of Washington in the form of corporate tax cuts, infrastructure spending, and reduced regulations that have largely handcuffed the economy for much of the past eight years.
Now, while it seems like we’ve been on Dow 20,000 watch for some time, we actually haven’t. In fact, it’s only taken the Dow some 42 days to make the 1,000-point move from 19,000 to today’s record close of 20,068.51.
That’s actually the second-fastest climb in market history. And while I’m happy for the bulls out there, one needs to ask just how much more juice is left in this rally’s tank.
It’s usually a foolish endeavor, trying to predict where markets will go next. But one thing that is likely is that the market euphoria is liable to remain as long as President Trump continues to do what he said he would do during the campaign.
The president has already made good on his promise to roll back regulations, promote American industries, curb federal hiring, and pull the U.S. out of the Trans-Pacific Partnership.
He also has opened the door for approval of the Dakota Access and Keystone XL pipelines, and he has frozen all new regulations currently in process but not yet approved.
Of course, he also signed an executive order that allows federal agency heads to waive requirements of the Affordable Care Act to the “maximum extent permitted by law.”
Now the real market-moving project is tax reform, and specifically corporate tax reform.
If the president can get corporate tax reform passed, then stocks will keep pushing higher. This might justify the current high valuations — and high growth expectations — in the market today.
And while I remain optimistic that this can happen, I also am a realist.
After all, this market rally has been strong since Election Day (about 9% on the Dow). However, at some point we will see sellers wrestle back control of the bias.
That hasn’t happened yet, but it always does. (At least for a short time.)
To give you a little historical perspective on the Dow’s latest 1,000-point run, consider the graphic below, as published on MarketWatch.
|Image credit: MarketWatch|
As you can see, today’s march past 20,000 is the second-fastest 1,000-point move in history. The fastest was the move from 10K to 11K in May 1999 — the peak of the dot-com boom.
Now, we all know what happened shortly after that 11K blowout. The subsequent declines righted themselves in relatively quick fashion. But I think it always behooves the smart investor to be on guard against bubbles.
Is this a Trump bubble we’re living in now?
We can’t say that yet. However, we do need to always be vigilant when it comes to our bullish sentiments. After all, if we are unbridled bulls and the market turns on us, we can get hurt.
Conversely, if we are cautiously optimistic bulls, then we’re prepared for whatever hand the market gods deal us.
So, why not always be prepared?
Do you think we’ll see more upside in stocks fueled by continued Trump optimism? Or, are you worried about potential bubble-like conditions developing on Wall Street? I’d love to hear what you think about this issue, and I encourage you to jump right in. Doing so is as easy as leaving me a comment on our website or sending me an e-mail.
World stocks reached a 19-month high today on a wave of good news.
Japanese exports rose for the first time in 15 months, sending the Nikkei up 1.4%.
European stocks gained 1% amid a 4% profit jump in Spanish bank Santander (SAN, +4.6%) and a surge in Deutsche Bank (DB, +5.1%) on word that it might IPO parts of its asset management biz.
And continued expectations for big spending by the U.S. government helped to propel the Dow above the 20,000 mark for the first time. The Industrials closed at a record 20,068.51 (+0.8%) in Wednesday trade.
Elsewhere in the news …
• Apple (AAPL) traded up to a new 52-week intraday high at $122.10. The company is suing Qualcomm (QCOM) in China for 1 billion yuan over patent issues. It is also reportedly near a deal to make iPhones in India. Shares gained 1.6% today.
• Boeing (BA) also soared to a 52-week high. The company’s earnings showed that revenues were down on falling military aircraft sales over the past year. But the beat on the top and bottom lines in Q4 sent shares 4.2% higher to $167.36.
• Canadian pipeline company TransCanada (TRP) added to yesterday’s 3.5% advance with a 1% gain today on profit prospects for its Keystone XL Pipeline.
• U.S. oil prices reversed yesterday’s gain, closing 0.8% lower after the EIA reported an inventory build of 2.8 million barrels.
• Housing ‘flips’ at decade high: The last time we saw so many units being sold more than once in a 12-month period was 2006. Flips represented 6.1% of home sales in 2016.
Good luck and happy investing,
Uncommon Wisdom Daily