Weekly Commentary – The implications from new high U.S. Dow Jones Industrial Average
U.S. Dow Jones Industrial Average touches new high last week. The index closed at 14397.07 points last Friday and advanced by more than 8 percent year-to-date. The Dow’s previous closing high was 14,164.53 on Oct. 9, 2007. The Fed still remains committed to an extremely accommodative policy, and positive figures from the latest U.S. labor market report, provide new momentum for the index.
Is the rally sustainable? The valuation of the DJI is not expensive nowadays (of course, not cheap as well), the latest economic data are supportive, and the market sentiment is not over-bullish. All of them imply the index can move up further in the future. According to Ned Davis Research, the index advanced by 28 percent after it broke the new high in average. That’s mean the index can reach 18,000 points in the future. However, the duration of bull market had less than two years.
One of the wildcards is the sequester from U.S. Congress. Without compromise over U.S. budget cuts between two parties, USD 85 billion in federal spending cuts this year that went into effect on March 1 will hurt the economy in U.S. Do not forget economic figures in February not yet took the sequester into account and investors still believe compromise will be reached soon. So, even U.S. equity markets are positive over medium to long term, you should keep monitor the negotiation in U.S. Congress, which may send the equity indices suddenly in the near future.
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