Get The Ticker Tape delivered right to your inbox.

X

More Than a Number: Rise to 20,000 In Lockstep With Record SPX, Nasdaq Highs

Share Print
January 26, 2017

(Thursday Market Open) An earnings extravaganza is on tap, with a stew of reports bubbling among different key industries one day after the Dow Jones Industrial Average (DJIA) topped 20,000 for the first time.

After weeks of coming oh so close, the DJIA sliced right through the big 20,000 mark Wednesday to fresh all-time highs. And the S&P 500 Index (SPX), not to be outmatched, drew within a hair of 2,300. Pre-market trading pointed toward a slightly higher open Thursday, though Caterpillar’s (CAT) earnings may be a bit of a drag on the DJIA.

While we normally focus more on the SPX because it’s a broader index, the DJIA’s rise above 20,000 looks more significant than it might otherwise simply because of its close correlation to record highs in the other indices. They’re in lockstep. Over the last 52 weeks, the DJIA and SPX have been 95% correlated, and it’s hard to say which one is leading the other. All the indices are backing each other up, and they’re all at all-time highs.

The market has come a long way very quickly. The SPX is up about 7% since the election, and the DJIA took just 42 trading sessions to accelerate from its first 19,000 close to its first 20,000 close. Typically, these 1,000-point climbs take about two years, according to research firm CFRA. The only time the DJIA made a faster move from one big round number to the next was in 1999, when it took 24 sessions to go from 10,000 to 11,000.

Partly driving this rally are the infrastructure announcements out of Washington, D.C., which point to possible demand around big projects that could put a charge into the financial, materials, energy, and industrial sectors.

Another factor is earnings, which are pretty robust so far. Some analysts have raised their estimates for overall Q4 earnings growth based on what they’ve seen these last two weeks. One firm raising estimates is CFRA, which said Wednesday it now sees S&P 500 earnings rising 4.7% in Q4, up from its earlier projection of 4.2%. So far, 69% of the companies that have reported beat analysts’ earnings projections.

Though it seems like earnings have just started, it’s worth noting that 60% of S&P 500 companies will have reported by the end of next week. That’s why now may be a good time, if investors haven’t already, to jump on some earnings calls and learn more about sectors and the economy. Today’s menu includes Caterpillar (CAT), Ford (F) and Bristol-Myers Squibb (BMY), all reporting before the open. It could be interesting to hear what executives from these three companies with huge international sales have to say about the new administration’s proposed policies.

Caterpillar beat analysts’ earnings projections but came up short on revenue and guidance, citing “weak economic conditions around much of the world.” And after the close, the earnings parade continues with Alphabet (GOOG), Intel (INTC), Microsoft (MSFT), and Starbucks (SBUX), among others.

Overseas, a number of Asian stocks posted three-month highs early Thursday, with more huge gains for the Nikkei as the upbeat U.S. markets spilled over into trading across the Pacific. The U.S. dollar climbed against foreign currencies, and U.S. 10-year Treasury yields rose back above 2.5%.

New home sales and leading indicators are on today’s economic calendar.

As the markets keep climbing, investors might also want to stay aware of options activity. Recently, there’s been a surge in put buys as some market participants appear to be hedging against a possible downturn in the stock market.

Though stocks broke out of their trading range in a big way on Tuesday and Wednesday, the crude oil market remains rather ho-hum. Despite OPEC’s cuts, U.S. production increases have kept a cap on oil rallies, analysts said. U.S. crude stockpiles rose 2.8 million barrels last week, the Energy Information Administration said Wednesday, and gasoline supplies climbed sharply. U.S. oil production is up more than 6% from mid-2016. Despite this, energy stocks rose Wednesday, partly due to Trump’s infrastructure plans. But energy does lag the broader market over the last month.

DJIA

FIGURE 1: WHAT A DECADE!

The Dow Jones Industrial Average (DJIA), plotted here over the last 10 years through Wednesday on the TD Ameritrade thinkorswim® platform, eclipsed 20,000 for the first time ever, and has come a long way from the 2009 recession low below 7,000. The climb from 19,000 to 20,000 represented one of the fastest moves from one big number to the next in the indice’s history. Source: Dow Jones. For illustrative purposes only. Past performance does not guarantee future results.

On GDP Watch: The government’s first estimate for Q4 gross domestic product (GDP) comes out early Friday, and the number looks like it could drop from Q3’s solid pace, if analyst estimates prove correct. The consensus estimate among analysts is for a 2.2% increase in Q4 GDP, compared with the government’s estimate for 3.5% growth in Q3. The economy picked up steam in Q3, but appears to have slowed a little in Q4, though not down to the weak pace seen early in 2016.

New 52-Week Low for VIX: Volatility flagged Wednesday as stocks soared to new record highs, with the VIX falling to a new 52-week low of 10.51 intraday. The VIX is now putting in its lowest readings since July 3, 2014, when it fell to an intraday low of 10.28, according to CBOE data. A longer-term low is 9.39, the intraday low on Dec. 15, 2006. Still, as we mentioned yesterday, looking ahead, the futures market projects climbing volatility.

Railroads Riding High: The industrials have done well so far this week, and railroads provided that sector some of its steam. Norfolk Southern (NSC) was up nearly 4% after reporting better than expected earnings Wednesday, and CSX (CSX) got a boost from NSC’s strong quarter, Briefing.com noted. Since railroads carry so much of the nation’s goods, including oil and coal, the performance of their business can often serve as a helpful barometer of the wider economy. The biggest railroad, Union Pacific (UNP), which reported better than expected earnings last week, noted that its full-year volumes “were down substantially year-over-year.” However, the company added that, “Higher energy prices, favorable agricultural markets, and improving business and consumer confidence all support a return to positive volume growth this year.”

Good Trading,
JJ
@TDAJJKinahan

Economic Calendar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR.

Source: Briefing.com

Daily Swim Lessons: Dive In

Join us for hands-on learning from platform pros with Swim LessonsSM on the thinkorswim® platform. 

Thursday: Options on Futures    

To join, log in to thinkorswim and click Support/Chat > Chat Rooms > Swim Lessons > Watch

JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

Read full bio »
Recent Posts
March 28, 2017

Keeping Things In Perspective: Glass Half-Full Scenarios Not Hard To Find

(Tuesday Market Open) An eight-day losing streak for the DJIA doesn’t necessarily mean the sky is falling, though there's a tendency to think that way.

March 27, 2017

With Health Care Bill Dead For Now, Market Focus Turns To Tax Reform, Key Data

Health care legislation never made it to a vote Friday, but surprisingly, the stock market didn’t react much, and could open the new week focused on tax reform.