Dow Jones Hits Fresh Record Highs. Where next?

Dow Jones Hits Fresh Record Highs. Where next?
Written by:
Michael Harris
November 26, 2020
  • On Wednesday, Dow Jones Industrial Average (DJI) surpassed the 30,000 mark for the first time in history
  • 75% of respondents in the Reuters poll said the ongoing bullish run would last at least six months
  • A new fiscal stimulus package would likely send DJI towards 31,000

Global stocks printed fresh record highs this week as Dow Jones Industrial Average (DJIA) finally surpassed the 30,000 mark for the first time in history.

Fundamental analysis: Biden and vaccine sending equities higher 

A major breakthrough in the Covid-19 vaccine development and the fact that the U.S. has started transition to the Biden presidency paved the way for stocks to race higher. 

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“The world is going to look a lot better this time next year than it does now, and that’s what equity markets are reflecting. The fact is the outlook has dramatically changed in the last month,” said Mike Bell, a strategist at J.P. Morgan Asset Management. 

Media outlets reported yesterday that the President-elect Joe Biden is looking to nominate the former Federal Reserve Chair Janet Yellen as Treasury Secretary, in a move that is likely to be praised by investors. 

“After a prolonged period of elevated risks (global trade war, COVID-19 pandemic, US election uncertainty, etc.), the outlook is significantly clearing up, especially with news of a highly effective COVID-19 vaccine. We view a Biden victory with a likely legislative gridlock as a goldilocks outcome for equities,” J.P. Morgan’s Marko Kolanovic wrote in a note to clients. 

According to the latest Reuters poll, equities are expected to continue climbing higher. Data shows that 75% of respondents said the ongoing bullish run would last at least six months.

“The rebound in equities from March to October was the initial ‘hope’-driven phase of a new bull market, led mainly by valuation expansion as profits collapsed, while we are now moving into the longer ‘growth’ phase as profits start to recover,” noted analysts at Goldman Sachs.

Technical analysis: A pullback likely

The buyers got what they wanted – a fresh all-time high in Dow Jones. Wednesday’s move marks the trip into an uncharted territory for the bulls. Given that the short-term target is achieved, DJI may correct now to 29100.

Dow Jones stock chart (TradingView)

Any additional move higher is dependent on more positive news. A new fiscal stimulus package would likely send DJI towards 31,000, which represents the next target for the bulls. 

Summary

Global equities have made additional gains this week with the DJI hitting a fresh all-time high. Analysts believe that stocks are likely to continue trading higher on improving risk sentiment.