Dow Celebrates 20,000 … Now What?

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?

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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,

Brad Hoppmann
Publisher
Uncommon Wisdom Daily

Your thoughts on “Dow Celebrates 20,000 … Now What?”

  1. good one brad. you mentioned that french lady named penn. she was interviewed on tv a few days ago and blew the gaff on the usa invasion of ukraine. yes it was an invasion by usa ..she has the facts and the donald agrees with her. so how come we still believe the opposite. poroschenko is still the usual puppet stand in but he is losing support all over europe for his ambition to attack russia. the pseudo ukraine army(stacked with nato and u.s. forces) are attacking a place near donetsk and are blaming the russians for everything. however an observer(unarmed) for reporting about any breaking of the truce(minsk agreement) is really upset with nato and usa and the usual anti-russian propoganda. it just shows how much media is really ‘fake news’ and the world at large is sick of it. hence your article about countries getting back to their own devices. trumpie is certainly making his mark lol

  2. It appears quite certain that we are in a bubble, but to call it a “Trump bubble” when he has been in office less than a week seems unreasonable, as it will imply that he is responsible when it bursts. I am no great fan of Trump (I was even less of a Clinton fan), but to blame him for a bubble that has been inflating for several years is unjust. Certainly the media is trying to set things up so he gets the blame for whatever bad things happen, but I expect better of you.

  3. If you count the Elliott Waves from the low, it is apparent we are near an end of this rally. The economy and the market run in cycles…and this one is at or very close to the top. The crazy, irresponsible borrowing and spending of the last 8 years (and to a lesser degree, that of the previous 8) that have led to a $20 Trillion National Debt will not help the situation when the big downturn comes. And, alas, Trump will be blamed for it.

  4. There was a stock market bubble even before the election and the bubble has grown bigger since the election. Trump’s protectionist tendencies are a threat to the market and the economy. Must we return to the days of the Smoot Hawley tariff? That seems to be what Trump and the Republican Congress want. That protectionism will disrupt global supply chains and make goods much more expensive. That is not a solid foundation for stocks and was not the case in 1931.

  5. I really liked your last two articles, Brad. Newsy with your reflections. I learned something I didn’t know from each article and your opinions had good basis. Thank you.

  6. Really think you hit it just right. Nothing lasts for ever and that is why our PRESIDENT IS NOT GOING TO WASTE ANY TIME.

  7. As you mentioned the market climb seems to be based on optimism. This optimism will most likely continue for a while until some news item puts a crimp in it. Sooner or later however, there will be a fall. The trick is to know when. I think most of us are not being very realistic!

  8. IF Trump can get corporate taxes slashed, yes these high, and even much higher stock valuations will certainly be justified! Big if. Also IF, people don’t start thinking he is a way to ambitious and start to doubt him, then things could deteriorate very quickly!

    And also, What’s with this WALL on our border? Is this the new Berlin Wall to keep Mexicans from defecting? Why? Or is it the new Magiot Line to keep Mexico from invading the US? Pretty stupid in any case!

  9. I wish I had a crystal ball then I would not need to think about this stuff. I do have a gut though and I think we might see a little more uptick and then maybe a leveling (for a very brief moment, days or weeks) then the bubble burst. We are going to have to go through some pain to correct ourselves from ignoring the inevitable. You can’t keep printing money to try and avoid the tidal wave…get your boards ready. We have been watching an illusion for so long people are believing it………time to face reality, to tighten our belts, do our own cooking and mending and get ready because it’s gonna be really nice on the other side…….if you prepare. And for the toil people might just turn back into real human beings again…wouldn’t that be Great!

  10. The market now is in a bubble like housing. Housing is having issues with affordability , now stocks are the same way.

    When the music stops there will be a lot of people left standing.

  11. hi brad,

    a comment about the dow index and other funny things. we all know that nothing ever happened until it ‘happens’, that is 99.9999% of people are unsuspecting (mostly mainstream media journos) and when it ‘happens’ (whatever it is that has happened) it comes instant and widereaching ‘news’ and people ‘everywhere’ are wondering how it could have ‘happened’. and that is why we have stock market crashes, bank failures and other nasty things.

    so the answer is ..ha ha, stay awake! and read subject matters like yours and other i.q. peoples’ daily blogs. then one can formulate one’s own policy. i haven’t a clue about shares etc. i just buy gold and silver and keep cash on hand and save for the ‘rainy day'(black swan event?). i guess that i am a tortoise among hares. keep up the good stories. thank you, cheers, ron

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