Dow 20,000 -- Will the Current Administration keep the Market Going?
If any of you missed the big financial news this week - you missed out on history. The DOW Jones arguably the world’s most renowned stock index hit 20,000 points for the first time. This was followed by another trading day that tacked on 100 more points. The TSX is also flying high.
It's safe to say that the other chunk of history is still waiting to repeat. What I mean by this is many investors are still on the sidelines waiting for the market to correct so some buying opportunities can emerge.
What does DOW 20000 mean?
Dow 20,000 specifically means that sentiment in the US market is off the charts. People are excited about what the new administration can do for businesses and corporations are excited because of all the chatter around regulations and tax cuts that could help their business. What one should be wary of is that the market having reached 20,000 has already priced this in. Therefore, a big market event is most likely required to push the market even further.
What does the new political landscape mean?
One of the factors that have contributed to Dow 20,000 is the election of Donald Trump to the office of US President. Wall St thinks his laissez-faire approach combined with his acumen for business and aggressive tactics will be good for business in the long run. AT&T a huge US Telecom company already stated that they will increase US spending and investing if they get a tax break. His pressure on the other countries and emphasizing the America First Strategy has American Corporations licking their chops. The problem here is the US economy is also made up of international corporations and other nations producing in the US that help to stimulate the economy. If the president gets in their way and cause problems, it may curb his agenda and the overall market. So far, the market has reacted quite positively to the changing of the guard - what may be interesting is when hiccups occur that change the overall sentiment. We are only 1 week in so give it time with this one.
How do you as an investor react to this.
A strategy of mine for a while has been wait on the sidelines and wait for the perfect opportunity. A good move that I have been debating for a while is hedging my bets using gold/utilities. Usually, when the market goes high, these holdings perform poorly and when the market goes down these 2 holdings go up. The reasoning behind it is simple - gold is safe haven and money is usually ploughed into this instrument when investors are fearful. Utilities on the other hand are recession-proof stocks. When the market suffers people still need their natural gas and electricity for their homes and businesses.
Should I wait for the perfect opportunity or just invest now?
The problem with waiting is that people can grow impatient waiting for the perfect opportunity. It may also be the case that people can end up waiting forever. My take is that I don’t want to use precious capital over a gain for 2-3% when the losses can be in the double digits. My advice here is to choose the strategy you feel most comfortable with. For more on this strategy look at my article on cash is king.
Will the market ever correct?
Remember the line? past performance is no indicator of future performance. The same holds true with corrections - it could be that 20,000 is the new norm and in a year's time you will back on this and say” oh 20,000 I remember that”. However, over the course of the market it's bound to experience its ups and downs and the market cannot keep going up forever. Remember that the current market sentiment has the whole TRUMP TRUMP bonanza already priced in. For the market to take off again we are either gonna need stellar corporate earnings or new legislations that fundamentally change the landscape of business. Also very important to keep in mind is that the reason behind the rise of Dow is thus far purely based on ---Anticipation, anxious investors, international businesses and Americans in general are eagerly anticipating that Trump will miraculously swing the magic wand, especially with his proven past business successes and losses. Let’s wait and see how the markets react or perform in the next 100 days and then reassess our strategy going forward.
Disclaimer: All of the above information is my own personal opinion. Please do your research and consult with a licensed professional or advisor before making any financial decision. Remember that past events and past performance are no indicators of future events.