Dow Jones, on a new course to 30,000

Angry Bull isolated

The Dow Jones has just exceeded 20,000 points for the first time (January 25, 2017) and this is very good news

Dow Jones Industrial Average

The Dow Jones Industrial Average, also known as the DOW 30 or simply the Dow Jones, is one of the most widely monitored indices in the United States. It allows you to view the trades made between 30 of the largest American companies during a standard trading session on the stock market. Contrary to what its name suggests, the values present have nothing to do with the industry. Formerly owned by the publisher of the Wall Street Journal and the Dow Jones & Company, the indicator has been managed since February 2010 by the CME group (owner of the Chicago Mercantile

Exchange, hence its name CME).

The DOW 30 is also a much less representative indicator of the US economy than the S&P 500, which, as its name suggests, is based on the 500 largest listed companies. By the way, this one has also beaten record after record in recent months.

The Dow Jones, which has exceeded 20,000 points, is no coincidence. Today’s equity prices are well supported by strong earnings and economic growth prospects. In fact, if President Donald Trump can avoid falling into a trade war or a real war, there is no reason why the Dow Jones cannot exceed 30,000 by 2025.

Obviously, part of the sharp increase in shares is due to the election of Trump and his business-friendly decrees. If Trump can succeed in reducing regulation and lowering corporate taxes, equities are expected to rise again this year. An additional 5% or even 10% gain in 2017 would not be surprising.

This projection of 30,000 in 2025 is based on the analysis of historical data provided by Jeremy Schwartz 2, Director of Research at WisdomTree. These data on stock returns, over rolling five-year periods from 1871 to today, suggest that stock market gains will be below the annual market gain (an average of 6% per year) over the next five years, before accelerating above the average after that.

A turbulent economic program

While Donald Trump’s rise to power allows the 20,000 points to be crossed, some of the administration’s new policies pose a serious threat to the economy and the stock market. The most obvious was the introduction of a 20% tax on Mexican products, “which would raise $10 billion a year “1 (or 9.3 billion euros) according to the White House. However, such a measure could raise the prices of Mexican products by the same amount, and ultimately penalize American consumers.

“We are in a trade war. We have been in a trade war for decades, which is why we have deficits,” 3 Ross said in an interview with Bloomberg TV. The Trump Administration considers that the large deficits accumulated by the United States towards China, Mexico or Germany are indicative of unfair trade practices that it wants to put an end to, if necessary by means of customs retaliation. If Trump started a trade war, the Dow would have difficulty reaching 30,000 by 2025.

A possible reproduction

The fact that the 20,000 points level has finally been reached does not mean that Wall Street will soon reach 30,000 points. Looking at what happened when the 10,000 points were passed in 1999 makes you think. When the Internet bubble burst, the Dow Jones then fell by 38% from January 2000 to October 2002. And after reaching 14,000 points in July 2007, the major financial crisis had brought the index down to around 6,500 points in March 2009. It should also be remembered that the record set by the Dow Jones in 1929 was not broken until 1954.

 

(1)http://www.leparisien.fr/politique/le-mur-de-trump-promesse-impossible-03-02-2017-6650820.php

(2)http://video.cnbc.com/gallery/?video=3000590315

(3)http://www.businessinsider.fr/us/wilbur-ross-talks-about-trade-war-on-bloomberg-2017-3/

 

Aymen Triki

Bassem TRIKI


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