The Dow Jones’ Santa Claus Rally Could Run into 2020

Last week, the Dow Jones Industrial Average Index (DIA) touched its all-time high. Similarly, the S&P 500 Index (SPY) and the Nasdaq 100 Index also reached their all-time highs. Industry experts believe we could see further upside in equities next year.

The Dow Jones today

The technical indicators also suggest further upside in the Dow Jones. Yesterday, the Dow closed 1.9% and 3.4% above the 20- and 50-DMA (day moving averages), respectively. The Dow was also above the long-term 100- and 200-DMA.

Today at 7:25 AM ET, Dow futures gained 0.1%, indicating a slightly higher opening. Today, the Shanghai Composite Index rose 0.7%. Major European equity indexes like the FTSE 100 Index and the CAC 40 Index are also trading in positive territory.

Which sector could boost the Dow in 2020?

According to a FactSet report released on December 23analysts are most bullish on the energy sector. Interestingly, energy has underperformed other major sectors, including utilities, financials, and consumer staples. Weaker oil and natural gas prices have dragged energy stocks.

However, after OPEC+ surprised with an additional output cut, oil prices have been rising steadily. Bullish sentiments surrounding oil could lift energy stocks. Chevron (CVX) and ExxonMobil (XOM) are the energy constituents of the Dow Jones.

The FactSet report highlighted that analysts recommended the second-highest percentage of “buy” ratings on the healthcare sector. This sector constitutes 13.1% of the Dow.

The Dow Jones Industrial Average has the highest exposure to industrial stocks. However, the percentage of “hold” ratings rose by 9% in the industrial sector. According to FactSet, this was the second-highest increase among the 11 major sectors since September 30.

The FactSet report also outlined that the utilities and consumer staple sectors had the highest percentages of “sell” ratings. Usually, these two sectors tend to underperform when investor sentiments strengthen for greater economic growth. For more on this topic, please read Will Cyclical Stocks Rally in September? Consumer staples constitute 8.6% of the Dow Jones.

But investors should be cautious!

Interestingly, the Dow Jones Industrial Average Index has been rising despite a contraction in earnings on a year-over-year basis. Also, President Trump’s impeachment could concern Wall Street bulls. Trump’s fiscal stimulus and trade agreements have strengthened the employment picture in the US, according to Pimco founder Bill Gross.

If the Senate votes to remove Trump from office, which is widely considered unlikely, it could hamper the ongoing progress in the US-China trade deal. The Trump administration has had one of the most stringent stances against China’s trade practices. Trump has been outspoken in his belief that China’s trade practices have hurt US employment for many years. To learn more about the trade deal, please read Why China Trade Deal Won’t End the Trade War.