The Dow Jones Industrial Average has surged upward in the weeks following the declaration of the presidential election results.
Driving these gains have been specific components, particularly financial stocks, such as Goldman Sachs Group Inc (GS) which stand to gain from the new administration’s financial policy proposals.
The index is now tantalizingly poised to create a new milestone.
However, the absence of any major catalysts means that it remains unclear whether this will at all be achieved. This gives the bears, who are in a minority, some cause for hope. But most market watchers are convinced that the Dow will soon break the 20,000 barrier.
Fastest 1000-point Gain in Sight
The Dow has now registered six successive weekly gains. On Tuesday, it gained 0.5%, to close at 19,974.62. The index also hit an intraday record of 19,987.63, leaving it less than 13 points or a mere 0.1% shy of 20,000. Outsized gains since election results were announced have driven the index higher.
This has been primarily due to the impetus received from certain components such as Goldman Sachs and Exxon Mobil Corporation (XOM).
If the Dow indeed manages to touch 20,000 this week, it will be the fastest 1,000 point gain for the index ever. To date, the fastest such gain achieved by the index was in 1999 when it moved from 10,000 to 11,000 over 24 trading sessions. The benchmark managed to break above 19,000 for the first time on Nov 22 and Friday will be the 22nd trading day since it achieved this landmark.
Is 20,000 Really Significant?
A section of market watchers have questioned the overwhelming importance being accorded to the 20,000 mark, deeming this as unwarranted. These observers argue that the percentage gain as a result of a potential increase from 19,000 to 20,000 is only 5.3% for the Dow. Such gains have diminished over time and look relatively insignificant when compared to the 100% gain which an increase from the 1,000 to the 2,000 mark represented.
Others have argued that the upcoming milestone would only be psychological, not material in nature. Also, questions about the Dow’s significance have surfaced once again. But the majority of experts agree that the Dow remains the most prolifically quoted barometer of the markets’ performance.
The 20,000 mark has achieved special significance ever since apprehensions over a Trump presidency gave way to optimism over the new administration’s policy proposals. Breaking above 20,000 will provide renewed vigor to retail investors who would subsequently power the rally. What is more important, therefore, is not achieving the milestone itself, but the likelihood of how much farther a rally would then go.
Will Gains Continue?
Some naysayers still believe that a slide for stocks could still ensue in the near term. They point toward bank insiders offloading their shares and concerns that stocks remain overvalued. Others have pointed toward the market’s fear-gauge CBOE Volatility Index (VIX), which declined 2.2% to settle at 11.45 on Tuesday. A level below 12 usually indicates that investors have become overly optimistic which means the time could be ripe for a sell off.
But the bulls think a low VIX level implies that costs of protecting long term stock holdings have declined. According to them, this sets the stage for a year-end rally which has become the norm in recent times.
Overall, the impetus provided by President Trump’s promises of fiscal stimulus measures, particularly his emphasis on infrastructure spending and the prospect of deregulation could continue to push the Dow toward and beyond 20,000.
5 Stocks Beating the Dow
Year to date, the SPDR Dow Jones Industrial Average ETF (DIA) is up 14.6%. Even as the Dow has continued to move higher, some stocks have surged further ahead, leaving the blue-chip index far behind. We have selected five such top performers, narrowing down our choices with the help of our new style score system.
Performance of Top Ranked Stocks Vs DIA Year to Date
Each of these stocks has a Growth Style Score of ‘A’ and a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Chemours Co (CC) is a provider of performance chemicals on an international scale.
Chemours has expected earnings growth of 60.1% for the current year. The stock has returned 367.5% year to date, outperforming the Zacks Chemical – Diversified sector, which has returned 16.4% over the same period.
KEMET Corp (KEM) is the world’s largest manufacturer of solid tantalum capacitors and one of the world’s largest manufacturer of multilayer ceramic capacitors.
KEMET has expected earnings growth of 79.2% for the current year. The stock has returned 187.8% year to date, outperforming the Zacks Electronics – Miscellaneous Components sector, which has returned 8.5% over the same period.
On Track Innovations Ltd (USA) (OTIV) is a designer, developer and marketer of cashless payment solutions.
On Track Innovations has expected earnings growth of 85% for the current year. The stock has returned 173.3% year to date, outperforming the Zacks Electronics – Semiconductors sector, which has returned 51.2% over the same period.
Willdan Group, Inc. (WLDN) is a provider of professional technical and consulting services to utilities, private industry, and public agencies at all levels of government.
Willdan Group has expected earnings growth of 82.7% for the current year. The stock has returned 171.7% year to date, outperforming the Zacks Engineering – R&D Services sector, which has returned 51.2% over the same period.
StarTek, Inc. (SRT) is a global provider of process management services.
Willdan Group has expected earnings growth of more than 100% for the current year. The stock has returned 151.1% year to date, outperforming the Zacks Outsourcing sector, which has returned 13.7% over the same period.
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