S&P 500
The FOMC Minutes released yesterday sent the Dow Jones and the rest of the U.S. stock market indices lower. As the USD jumped from its lows, it made victims on its way up.
However, investors should remember that higher stock prices and higher USD is not something new to financial markets. Not long ago, the EURUSD traded at 1.25 and fell to 1.05 area. All those years, as the USD got stronger, the U.S. stock market rallied from one all-time high to another. Hence, a precedent exists.
Another thing in favor of the Dow Jones is that this is summer trading at its best. The market reacts at some news, and then the next thing you know it is back the previous day’s levels and challenges the highs. After all, there are not so many options left to search for yield as the Fed lowered the federal funds rate to zero and is actively increasing the size of the balance sheet.
The chart below shows the Dow Jones performance relative to its peers. It lacks the recovery seen in Nasdaq and S&P500, but overperforms when compared to FTSE.
The difference between the U.S. stock market and the rest of the world comes from the difference in the stimulus provided by the Fed and the Congress. The monetary and fiscal stimulus outpaces anything else seen in the word – hence the U.S. stock market decouples from other equity markets in the developed world.
The S&P500 is close to making a new all-time high. Dow Jones will try for it too, sooner rather than later. In preparation for that to happen, consider buying some strength. That is, wait for a move above 28,200 to go long and place a stop-loss order at 26,500. Use the difference between the two and project it twice to the upside, to target a move to fresh all-time highs.
Dow Jones has some catch-up to do when compared to its peers.
