By Mickey Welcher
The Dow Jones Industrial Average broke through 20,000 about two weeks ago and, despite the political chaos that came after a travel ban executive order by President Trump, closed back up above this level Friday.
So what does this all mean? History has shown when the market breaks through a big thousand-point level, the index continues to move higher for the quarter, even when the fundamentals should push the figures in the opposite direction. If history proves correct, this is good news for investors for at least the next few weeks.
Lately, there have been many experts questioning why the Dow and other stock averages are so high. Some believe the market is over-valued or is going to fall apart very soon. There is some truth to the over-valued sentiment, but it might be better to say “don’t ask why.” There are many reasons the market can continue to hold strong for the short term. Here are just a few.
Stock Traders Love A Winner. Traders like when the market hits a milestone like the Dow just did and will keep the momentum positive.
Economic Indicators Still Strong. While interest rates have inched up, they are still very low. That’s another positive for the stock market. Many big tech companies are also gearing up to provide their latest financial reports in the last week of January and the first week of February. So far earnings have been a nice surprise, which has helped to push the market higher. And there’s a great deal money sitting on the sidelines that can jump into the market if it starts to decline, thereby boosting prices even during a downturn. The past two years we have seen a few big drops that have been followed by bounces back to new highs.
Political Promises Are Making a Good Impact. The market has been helped by political news regarding spending, which has driven industrial and infrastructure stocks higher. Some major indices place a high value on these types of companies, with many of them paying high dividends in good times.
Bad News Is Still Good For Stocks. Last week we had a lower than expected gross domestic product number, which would normally be cause for concern. However, the news has helped the market because a slowing economy implies the Federal Reserve will not raise rates, which keeps money coming into the stock market.
What does all this mean? To be honest, no one knows where the market is going over the next month, quarter or year. One of the biggest mistakes investors make during this kind of situation is trying to outsmart the market. You might get lucky once or twice, but the market will always win in the long run. I have been advising my clients to stay the course until we see fundamental statistical changes in the actual trend of the market. So for now, enjoy the Dow at 20,000 and don’t ask why.
Mickey Welcher is founder of Envestim, a low-cost financial advisory firm for anyone looking to start or manage their portfolio. He can be reached at mickey@envestim.com.
