George Hoday/CC0 1.0.
Since mid-June, it has seemed inevitable that the Dow would break through its (now previous) all-time high of 26953.5. The last few days it has got tantalisingly close as it became a matter of when not if. With the US celebrating Independence Day today, it seemed fitting that on the eve of 4 July, the Dow finally managed to reach the historic milestone, but how far will it go?
Why is the Dow at an all-time high?
- Fed interest rate expectations
- US-China trade war resolution
The Dow has been performing strongly for a sustained period of time in the long term, maintaining an upward trend. More recently, the latest push has been fuelled by a couple of factors. Firstly, the Fed delivers its interest rate decision tomorrow morning, where interest rates are expected to be cut.
Interest rates throughout 2018 have remained at 2.5%, however weaker than expected economic data that recently came out from the US has implied a slowdown in growth. This has caused many to believe that the Fed will reduce rates down to 2.25% in an attempt to get the economy to kick on further.
Secondly, tensions between the two largest global economies seem to have simmered in light of the recent trade war between the US and China. At the recent G20 summit in Osaka, Japan, President Trump and President Xi met for talks regarding the trade war. Although nothing definitive was announced, just the fact that both sides had agreed to re-enter negotiations was enough to help indices as an easing in tensions and possible end to the saga could be in sight.
How are other indices reacting?
The NASDAQ and S&P have mirrored the Dow’s progress of late, and all three have experienced record highs in the last 24 hours. All three peaked late last night (around 23:00 BST) before shooting back down slightly and levelling out.
NASDAQ high: 7874.9
S&P high: 3002.21
Will the Dow continue to rise?
Whether the buying will continue for Wall Street will depend on a few factors over the coming weeks. We have seen that changes in the US-China trade war discussions have had serious implications on the Dow, so any progress in these latest talks will likely impact it all the same.
Traders have already factored in the Fed rate cuts, so if it does indeed decide to reduce them to 2.25% it’s unlikely to change much – with it already being priced in. Were the Fed to surprise us and keep rates at 2.5%, expect indices to react strongly.
A little further in the future, US earnings reports for Q2 are due in a couple of weeks. It will be interesting to see how the major stocks are performing, and the Dow is likely to be highly reactionary to whatever comes out.
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