The Wall street indices closed at record highs on 1st March 2017, led by optimism from President Trump speech at Congress. Dow Jones Industrial Average closed at a record high 2115, Nasdaq closed at 5904, S&P 500 closed at 2395. Dow crossed the 21,000 level for the first time even, which is highly positive for market sentiment.Dow took 24 days to reach 21,000 from 20,000 levels.
Markets are awaiting election results for key states especially UP, to be declared on the 11th of March, for future direction of the Sensex, Nifty. A win by the ruling government at the centre led by BJP, would provide the markets a strong sign that the public is not giving a thumbs down to demonetization, On the other hand, a poor showing would mean worries of reelection to power in 2019.
What does Dow Jones 20K milestone means to market?
Prior to US Presidential elections, Dow Jones Industrial Average was up by 2.66% (since Jan 2016 to 7th November 2016). Mr. Donald Trump was elected as 45th President of the US, Dow Jones Industrial Average rose by 10% post announcement of election results mainly due to the pro-business policies of President elect Mr. Trump.
The US economy has witnessed an impressive economic data this year which resulted in building up expectations of further growth in the economy; private sector has added 15.6 million jobs in the last 6 years and in November 2016 unemployment rate in US hit 4.6% for the first time since 2007. On top of it all, in the recent FOMC policy meeting, Fed Chairperson has hiked interest rate by 25bps and signalled more rate hikes in the year 2017 suggesting Fed confidence in the economy.
The US economy advanced 3.5% in Q3 of 2016, up from 1.4% in the previous period and better than a 3.2% in the second estimate. It is the highest growth rate in two years. The FOMC raised its GDP growth forecasts for 2016 to 1.9% from 1.8% in the September projection and for 2017 to 2.1% from 2% previously estimated.
Dow Jones Industrial Average is a price-weighted average index, which means that stocks with higher weight in the index carry more influence. Goldman Sachs has highest weight in Dow Jones Industrial Average index of about 8.13%, share price of Goldman Sachs rose by 45% in last 3 months which helped Dow Jones to reach 20K milestone little early.
Trump bump followed by Fed interest rate hike leaves investors with a bullish view on American markets.
A strong US Economy and markets bodes well for the world markets and our own Sensex and Nifty too. We may be set back a few quarters due to demonetisation and its aftermath but in the medium term Dow climbing record highs is positive for our markets.