Investors continued to focus on positive news, which helped stock markets rise on Thursday. The Dow Jones (DIA) and the S&P 500 (SPY) gained approximately 0.5% each and hit a new all-time high. These indexes have gained in six of the last seven trading sessions. Dow Futures are pointing to a marginally positive opening today.
Dow Jones and the S&P 500 shrug off impeachment
Recently, the markets have been looking positive. We’re about to enter the last trading week of the year. We’ll have to see how high markets go amid this Santa Claus rally, especially when they’re already at all-time highs. The Dow Jones has risen more than 21%, while the S&P 500 has risen almost 28% this year. The tech-heavy Invesco QQQ ETF (QQQ) has risen 37% YTD.
The clouding sentiment appears to be overturning. Investors look bullish on stocks for the next year and recession fears are waning. Notably, professional fund managers are lowering their cash holdings and moving to equities. The partial trade deal between the US and China is a big trigger for the sentiment change. Although the deal will likely get signed early next month, the world’s two biggest economies seem to have found common ground for an interim trade deal.
According to The Washington Examiner, the House passed President Trump’s USMCA (United States–Mexico–Canada Agreement) on Thursday. The USMCA will replace NAFTA (North America Free Trade Agreement). The bill will go to the Senate. Passing the bill would be a big win for President Trump if it comes into existence. President Trump said that NAFTA benefited US trading partners at the expense of the domestic economy. After a partial trade deal with China, USMCA could be another significant point for President Trump in his 2020 reelection campaign.
The Dow Jones and other major indexes largely overlooked President Trump’s impeachment. The process will now to a trial in the Senate. The chances of President Trump getting convicted in the Republican-led Senate are slim. As a result, investors continued to cheer other developments including strong economic data and trade deals. However, President Trump said last month that his impeachment would lead to the biggest fall in market history. According to a survey by CNBC, among the 800 respondents, 45% disapprove, 44% approve, and 10% are neutral on the impeachment.
Economic indicators paint a rosy picture
Along with trade deals, economic indicators are also showing signs of a revival after the concerning slowdown. The US industrial production jumped 1.1% in November after a decline in October. Manufacturing rebounded due to higher production in the automobile sector mainly after United Auto Workers ended the strike at General Motors (GM). The employment numbers have remained strong for the last few months. Currently, the unemployment rate is at a multidecade low. Housing market indicators have also been strong this month. In November, building permits rose to the highest level since May 2007. Meanwhile, housing starts have increased to 13.6% on a yearly basis. China’s economic indicators have also shown signs of bottoming out in the world’s second-largest economy.
Dow Jones and the S&P 500 are overbought
With the recent strength, both the S&P 500 and the Dow Jones Index are trading in the overbought zone. Their RSI (relative strength index) levels are 80 and 74, respectively, as of Thursday. Notably, these RSI levels indicate that there could be a reversal in the index’s direction in the short term. Some of the top constituents of the Dow Jones Index, Apple (AAPL) and Microsoft are also trading in the overbought zone. They have risen 78% and 53%, respectively, this year.
Concerns related to the China trade war seem to have eased since phase one is getting closer. There are fewer recession fears for next year after rosy economic data. However, we’re already in the 11th year of the bull run now. We’ll have to see how high the Dow goes from already record highs. A UBS survey showed that high net worth clients expect a market crash sometime next year. Not many Wall Street analysts see much upside for US stock markets next year. Read S&P 500 at Record Highs: Not Much Upside in 2020 to learn more. However, the global economic outlook has improved over the last few weeks partially due to phase one of the trade deal. Analysts might also upwardly revise their targets for the S&P 500 and the Dow Jones.