On Wednesday, markets at Wall Street hit a new high when the Dow Jones Industrial Average ended above 20,000 points, the first of its kind.
Dow Jones Finishes above 20,000, Makes History
In addition to the Dow Jones Industrial Average hitting above the 20,000 mark, others including Nasdaq and the S&P 500 indexes also attained new highs amidst renewed hopes that President Trump’s policies will reinvigorate the US economy.
In the month of January, the Dow touched the 20,000 point and by Wednesday, it spiked 0.8% to attain the 20,068.51 milestone.
As investors anticipate higher growth and tax cuts, they have continued to pump in money into shares.
Following the rise in the Dow, Kellyanne Conway, a senior Trump adviser tweeted that the historic milestone could be attributed to the ‘Trump effect.’
Admittedly, the market has been particularly focused on this milestone for at least two months now. Julian Emanuel, an Equity Strategist at UBS said, “There was indeed a bit of anxiety as to whether it was going to be surmounted.”
The most recent 1,000-point milestone was attained just two months after the Dow closed above the 19,000 point, making it the second fastest 1,000-milestone rise in history,
Between March 29 and May 3 1999, the industrial index rose from the 10,000 to 11,000 point in just 24 trading days. The index took close to two years to rise from 18,000 to 19,000 points.
Dow’s gain could largely be attributed to the performance of financial stock including JP Morgan and Goldman Sachs shares, which accounted for up to 20% of the rise.
Investors believe that some of the policies proposed by Mr. Trump will cause inflation and trigger an increase in interest rates.
According to Tim Ghriskey, chief investment officer at Solaris Group New York, “There is a real belief that Trump is real given that he has been extremely active these initial days in office and change may take place faster than people expected.”
Neil Wilson, senior market analyst ETX Capital in London said, “The psychological impact is huge and after a slight pullback prior to the inauguration, this really ascertains that the great move from bonds to stocks is here with us.”
Optimism over inflation and growth
He added, “Concerns over protectionism are running alongside optimism over growth and inflation for now; the question now is how long this can last.”
Indeed, the actions taken by the president have so far confirmed that he is less stringent on regulations in financials and energy sector and is supportive of business.
However, others claims that this is a large bubble and that if it is a real move from bonds to stocks, which would essentially end a 30-year bond bull market, there is still a large amount of cash available that could be pumped into equities and boost more growth for the rest of the year.