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The Dow Eyes 20,000

December 13, 2016, 3:44 pm

Just when it looked like the market was set to take a break following its incredible post-election run, it bounced off support and climbed to yet another new all-time high today. Last week’s 3.1% gain actually marked the S&P 500’s best week since the election and put it officially in uncharted territory. The Dow is just a hair’s breadth away from hitting 20,000 for the first time ever, and even the small caps and technology names are joining in the rally. Both the Russell 2000 and the NASDAQ finished last week at their highest levels ever and continue to look strong now.

At this point, it’s extremely difficult to come up with reasons to be negative toward stocks heading into the final weeks of the year. However, I did find the cover of this week’s Barron’s issue interesting. It read, “Get Ready for Dow 20,000.” Any time the major financial publications start touting the market, focusing on the new highs and featuring ultra-bullish commentary, it does scare me a little. The conventional wisdom is that when the masses finally start to agree that stocks are the place to be it can suggest that a bull market rally is long in the tooth.

While hitting that number on the Dow doesn’t have any true technical meaning, it does have psychological importance for investors. The Dow isn’t the benchmark used by the majority of folks, but it is still the lead on the evening news that most investors watch. And when the big story is “Dow 20,000,” it will catch the attention of the weekend warrior investor and bring a new flood of money into the market.

That’s one thing I’m very pleased to see: there has been major change in the overall attitude of investors. And one way to help propel the economy (and by default the stock market) is to boost the average American’s confidence, leading to more entrepreneurs, more jobs and more spending.

Economic numbers had already started improving prior to the election, and that trend has continued in the month since. The latest consumer confidence reading from the University of Michigan came in at the best level since January 2015. It was a big increase from the October reading, which was at one of its lowest levels since 2014.

The ugly campaign was one reason for the pessimism, but clearly more than just the end of the election is contributing to the dramatic jump in confidence. It doesn’t really matter whether it’s the potential of what President-Elect Donald Trump can bring to the economy and Americans or something else. What is important is that the return of confidence will be a major catalyst for the market to continue its climb in 2017.

 

One comment

  1. Sounds and feels right!

    Comment by john on December 14, 2016 at 6:40 pm

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