The trumpets were ready, the bunting unfurled but sadly they’ve all had to be put away for the time being as the Dow failed to break 30,000 and beyond. The broader S&P500 has also struggled at the highs as the markets battle with short-term virus pain and longer-term vaccine joy.
The Dow hit the 20,000 historic milestone on 25 January 2017 after rallying some 1,700 points after President Trump’s election victory in November of the previous year. Wall Street was betting big that Trump’s plans to slash taxes, cut regulation and ramp up infrastructure spending would make the American economy great again. History is probably the best judge of that bet, with the main driver now being, in company specific terms at least, Apple.
Since hitting 29,000, the tech giant has contributed nearly 1,300 points which is more than twice that of any other Dow component. Of course, round numbers are points of interest more for the cover of Time magazine than traders and investors especially with a price-weighted index like the Dow, but we can at least add this landmark (when it happens) to the collection of tech stats which have fuelled this year’s indices performance.
Revealing S&P technical indicator
Interestingly, many observers are talking about the ‘great rotation’ out of growth and the US, and into value stocks and the rest of the world. If we switch our focus to the S&P500, we can see that the distance between the index and its 200-day Moving Average is now two standard deviations above the mean, for the first time since May 1999. This generally means there is a high chance of a major pullback as the market has discounted a lot of good news already. Time will tell as we head into a long winter and with prices nestling on previous cycle highs from September and October.
DXY holding key level
The Dollar is widely expected to struggle next year as low yields, relatively slow growth expectations and reduced trade tensions all deliver a sucker punch to the greenback. The market is already short King Dollar but for the time being seems reluctant to add to these positions. The surge in infection rates is holding up the world’s reserve currency as it bangs on the exit door to levels not seen since April 2018. In fact, the lack of support below the 92 zone is striking with bears eyeing up the 2018 lows just above 88.
With EU leaders struggling today to get agreement on the pandemic relief package, risk assets may be kept in check into the weekend and put a floor below USD for now.
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