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Dow’s Rise Puts It Near 20000 Milestone

Posted by hkarner - 15. Dezember 2016

Date: 14-12-2016
Source: The Wall Street Journal

The blue-chip index has hit records several times since the election, powered by financial and industrial companies

The Dow Jones Industrial Average came tantalizingly close to 20000 Tuesday, climbing within 50 points of tdow-12_16he milestone before paring gains in afternoon trading.

The blue-chip index, the S&P 500 and the Nasdaq Composite closed at records, the sixth such trifecta since the U.S. election.

The stock market has rallied as investors bet that President-elect Donald Trump’s proposals to cut corporate taxes and ramp up fiscal stimulus would accelerate growth.

The gains have particularly benefited shares of financial and industrial companies, helping the blue-chip index outperform its peers. The Dow industrials have risen 8.6% since Election Day, compared with 6.2% for the S&P 500 and 5.2% for the Nasdaq Composite.

On Tuesday, the Dow industrials rose as high as 19953.75 in intraday trading before the index finished at 19911.21, up 114.78 points, or 0.6%, in its seventh consecutive session of gains. The S&P 500 rose 14.76 points, or 0.7%, to 2271.72, boosted by a rally in energy and technology shares, and the Nasdaq Composite rose 51.29 points, or 0.9%, to 5463.83.

“There’s a wave of euphoria around the market right now,” said Tom Anderson, chief investment officer at Boston Private Wealth. “The consumer is in good shape, the economy is in sound shape and earnings are bouncing back.”

Recent gains in stocks have been accompanied by expectations of higher inflation and growth. Those factors have bolstered the view that the Federal Reserve will raise interest rates Wednesday and possibly pick up the pace of increases in 2017 and 2018.

“Markets are assuming that growth will be higher than otherwise, inflation will be higher, the unemployment rate will be lower and interest rates will be higher,” said Ellen Zentner, chief U.S. economist at Morgan Stanley.

Ms. Zentner expects the Fed to raise rates this week and twice more in 2017. “The new outlook is saying that for the first time, the Fed’s expectations [for rates next year] look plausible,” she said. “Faster growth and a higher-pressure economy means the Fed is going to have to react.”

Few expect a rate rise to ruffle financial markets in the short term, but some worry that the recent rally in stocks could be disrupted in 2017 if the Fed raises rates more than investors expect.

sp-500-12_16“The equity market is not looking at rising rates and a stronger dollar,” said François Savary, chief investment officer at Geneva’s Prime Partners. “It’s pricing in two rate increases next year, but it could be three.”

While stocks have rallied, bonds have been under pressure, as inflation erodes the returns of long-dated debt. The yield on the 10-year Treasury note edged higher to 2.479% Tuesday from 2.478% on Monday. Yields rise as prices fall.

Elsewhere, the Stoxx Europe 600 rose 1.1%, with Italian banks among the region’s best performers.

Japan’s Nikkei Stock Average added 0.5% as the dollar continued to strengthen against the yen.


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