Dow pole vaults 22,000 for the first time ever, but beware the landing
NEW YORK: The blue chip Dow Jones Industrial Average vaulted over the 22,000 mark for the first time on Wednesday, but investor fears about the sustainability of the gains took the shine off the round number milestone.
The rally lost momentum during the day’s trading and despite the recent run up, helped by strong earnings from Apple Inc and Boeing Co, some technical indicators were flashing warning signs.
“The market gain has been built on a narrow group of issues. That typically is not indicative of great health,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia. “I would not be shocked ... if we saw a pullback.”
And with industrials at a record high, Dow theory suggests that the Dow Transportation Average index should also hit a record in order to confirm the market’s march higher.
But that index trails the Dow industrials’ year-to-date performance by almost 10 per centage points and is more than 6 per cent below its July high.
And overall market breadth, or the number of winning stocks relative to losers, is weakening even as the major US indexes set record highs.
That means the broad gains have been driven by advances in a declining number of companies, and market watchers fear they could be hard to sustain.
The number of 52-week lows among NYSE- and Nasdaq-traded stocks is at its highest since late June while the number of 52-week highs has dropped sharply since mid-July.
The Dow has risen by about 2,200 points this year and nearly 600 of that advance come from Boeing alone.
Apple, McDonald’s Corp and UnitedHealth Group Inc have added more than 200 points each.
The Dow is a price-weighted index, meaning names like Apple, with its US$158 price tag, and Boeing, which trades around US$238 per share, will generally have more of an influence over the index than components like the roughly US$25 per share General Electric Co.
The lack of breadth as well as the underperformance by the Dow transports could be a signal that the market rally could be sputtering out, at least for now.
Julian Emanuel, executive director at US equity and derivatives strategy at UBS in New York, said the weakness of the S&P 500 and Nasdaq on Wednesday versus the strength of Apple shares showed an “underlying fatigue in the rally.”
The S&P 500 and Nasdaq Composite traded flat on Wednesday, even as Apple jumped nearly 5 per cent.