DOW 20,000: it’s just a matter of time

Key levels in the DOW and S&P are still being taken out.

Source: Bloomberg

In this article I have put the technical levels to be crossed to confirm a real attempt at key record levels in the major indices in the US. We have yet to see a close over these levels in holiday trading.

Debate rages over when or if the 20,000 level of the DOW will be taken out. In discussing this, some key information needs to be taken into account.

Last night, five-year US treasury bonds traded at 2% yield. The markets are really starting to price in the FOMC statements, suggesting three interest rate hikes in the next 12 months.

But what would really push the Dow over 20,000 in the near future?

In this very data-dependant world, the inflection point the markets are looking for may be just around the corner in the form of employment numbers from Germany and the US.

3 January: German employment numbers

German unemployment at 6% could be weighed down with the influx of one million refugees into the economy. While jobs are being found in unskilled areas, the numbers may start to weigh as higher-skilled vacancies do not take in the balance of those looking for work.

I’m expecting a change from 4.1% to 6% will be reported.

4 January: German YOY consumer price index

The consumer price index reflects change in the cost of living. Widely considered the first signal of a growing economy, this number will be watched with interest as Germany is the largest economy in the euro area.

The Eurozone CPI will also be reported on this date.

I expect a change from 0.4% currently to 1.4% for the German report, and a change from 0.6% to 1.0% for the Eurozone report.

4 January: US ISM Manufacturing

The ISM number can be one of the biggest market-moving surveys. The ISM is a forward-looking survey of managers’ sentiment around prices being paid and employment expectations. The ISM can override the non-farm payroll in importance.

I expect an improving move from 53.2 to 53.5.

7 January: US non-farm payrolls for December

Still a significant number and one closely watched by the Fed Open Markets Committee (FOMC).

Markets will react to this report as an indication of further rate rises in the US as the job creation number is a sign of economic strength.

I expect a sight fall from 178K to 175K. 

In conclusion

With all of these numbers meeting or exceeding expectations, the market bulls may see the way ahead and 20,000 points for the DOW.

As the Australian 200 often takes a direction from the leading economies’ performance, our 200 index would consider the 6000 point level as a sustainable target on further bullishness in global markets.

With improving bond yields, the financials will see a way to widen the loan book yield and the bottom line as the cost of borrowing is raised in an expanding economy.

The AUD/USD currently trading below $0.72 also benefits the resource area, which makes up a key component of the local index.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen. 79% van de retailbeleggers lijdt verlies op de handel in CFD’s met deze aanbieder.
Het is belangrijk dat u goed begrijpt hoe CFD's werken en dat u nagaat of u zich het hoge risico op verlies kunt permitteren.
CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen.