As we kick off the second half of 2017 the Dow Jones industrial average index has today climbed 200 points to reach an all-time high of over 21,500. This seems to be something of a blue day for the US stock market with the banking industry now joining the party. As we have covered in some of our more recent articles, Fed stress tests were passed by all banking businesses in the US suggesting they are on a much firmer financial footing than many had expected.
NASDAQ slightly down
While the NASDAQ composite was down 0.1% in early trading this is neither here nor there but could it indicate a change in investor strategy going forward? For some time now banking stocks have underperformed because of their perceived defensive nature and concerns about their financial well-being in the short to medium term. The fact that they all passed the Fed stress test has taken away some of the doubt prompting a rebound in share prices amid talk of mergers and acquisitions.
Whether investors are selling down technology stocks, which have performed admirably of late, in favour of underperforming banking stocks is debatable and only time will tell. What we do know is that the Dow Jones industrial average will be closely watched over the coming days and weeks!
Will technology shares take a hit?
It was interesting to see that some of the investment funds focused on technology shares took a hit towards the end of June. Whether this was window shopping and profit-taking ahead of the half year-end is debatable but there is no doubt that technology shares have created some stellar returns over the last 12 months. We may be approaching an interesting crossover point with so-called defensive stocks such as banking companies picking up while the technology sector comes in for about a profit-taking. Will they balance each other out?
Economic growth and the Dow Jones industrial average
At this moment in time, with the Fed recently downgrading US economic growth prospects in the short term, there is a feeling that stock markets are slightly detached from the economic situation. Donald Trump has promised to increase US economic growth to around 4% which is nearly double that of current forecasts from the Fed. If nothing else Donald Trump does give a feelgood factor to investors in the US although at some point he will have to start delivering on his many ambitious promises.
Only last week we had Ron Paul repeating his doom and gloom scenario for the US with a collapse in stock markets and a massive rise in the price of gold. He is blaming the Fed for everything which could potentially go wrong with the US economy although at this moment in time investors seem to be ignoring his downbeat assessment. The fact that he initially talked of his doom and gloom scenario exactly 12 months ago, over which time markets have pushed ahead strongly, may slightly take the edge off the believability factor.
Interesting times ahead
It will be interesting to see how the US stock market and the US economy perform in the short to medium term with differing opinions on all subjects. Investors seem very happy to take Donald Trump at his word, they believe he will inject more growth into the US economy but we are fast approaching the time to deliver. Talk is cheap!