Factors in Dow’s retreat from brink of 20,000
Index now nearly 200 points shy of milestone
This is not a kiss-and-tell story: The fact is, the on-again, offagain romance between the Dow and the 20,000 milestone officially is on hold.
The Dow Jones industrial average’s flirtation with 20,000 has cooled since Jan. 6, when the stock index faced a football-style fourth-and-inches market moment but was stopped 0.37 points short of its history-making milestone.
What postponed the Dow 20,000 party?
In the seven trading days since the Dow was turned back just shy of the 20,000 mark, the 30-stock index has been in retreat. It has finished lower six of the past seven sessions. And after Wednesday’s drop of 22 points to 19,804.72, it is nearly 200 points away from the milestone.
So what gives? ‘TRUMP RALLY’ MATURES Dow 20,000 is just a number. But the near-miss milestone coincided with a stock market that had run far and fast since Election Day. From the first day of trading after Donald Trump won the White House until Jan. 6, when the Dow came within a whisker of topping 20,000, the Dow surged nearly 1,700 points, or 9.1%.
The bulk of those gains were driven by hope. Investors began pricing in a stronger economy and better corporate earnings based on Trump’s business-friendly policy proposals.
Profit-taking was bound to kick in, especially since the Dow was at its most “overbought” level since November 1996, according to Mark Arbeter, president of Arbeter Investments.
“The sugar high is wearing off,” Terri Spath, chief investment officer at Sierra Investment Management, wrote in a recent report. STOCKS GO FLAT AFTER DOWNGRADE On Jan. 9, the first trading day after the Dow came closest to 20,000, Goldman Sachs slowed its climb further when it downgraded fellow Dow components Coca-Cola and Procter & Gamble to “sell” investment recommendations. That helped push shares of the stocks lower. FINANCIALS FIZZLE Goldman Sachs, JPMorgan and other Dow financial shares shot up after Trump’s win. The idea of less regulation of banks, a better economy and the prospect of rising interest rates put banks in the “Trump rally” sweet spot. But the bank-fueled rally has stalled since Jan. 6, the same day the Dow came within a single point of
The sugar high is wearing off.” Terri Spath, chief investment officer at Sierra Investment Management
20,000.
Goldman Sachs ran up 35% from Election Day until Jan. 6 and was the Dow’s top performer in that span. But since then, it has been among the Dow’s worst performers, tumbling more than 4%. In a sign of how the bank rally has stalled, Goldman shares fell 0.6% Wednesday despite reporting quarterly earnings and revenue results that exceeded analyst expectations.
“The first leg of the ‘Trump trade’ is largely over,” Jason Trennert of Wall Street firm Strategas Research Partners said in a note. “The next leg of the Trump trade will come when we learn more about specifics of corporate tax reform and deregulation.” IMAGINARY CEILING HALTS RISE Big round numbers such as Dow 20,000 often act like an impenetrable ceiling that takes time to break through and then acts as a magnet for a period.
The best example might be what happened to the Dow around 1,000, says Bob Baur, chief global economist at Principal. He notes the Dow came within five points of topping 1,000 in February 1965. But the Dow didn’t close above 1,000 until Nov. 14, 1972, according to S&P Dow Jones Indices. The Dow didn’t say goodbye to 1,000 for good until 1982, or 10 years later.