WEEK AHEAD: AUGUST 31

Short Description

The S&P 500 and the Nasdaq are trading at record highs so I list three reasons the Dow Jones Industrial Average could be next do so. I also preview the week ahead with a rundown of the important events on the economic calendar. Thanks! Rich

Video Script

3 Different Reasons the Dow can hit a Record High - THE WEEK AHEAD (Aug 31-Sep 4, 2020)

Hi everyone, so as normal I’ll take you through the items to watch out for in the week ahead in markets including a rundown of this week’s economic calendar. And I’m also going to give you three, I think less often spoken about reasons that the Dow Jones stock index could be next to reach a record high 

So last week the Dow Jones index had a reshuffle, which kicked out Exxon Mobil, which under one guise or another has been in the index for nearly 100 years. But did you know that Charles Henry Dow and Edward D Jones first began computing a daily stock market average in 1896? They added together 12 industrial stocks and divided them by 12 to get the average. A simple idea that led to us trading index CFDs 124 years later.

If that extra titbit of index information tickled your fancy– please click the like button – it really helps us spread the word about these videos!

China PMI data kickstarts the week with a deterioration expected in both services and manufacturing. The August reading for German inflation follows. There’s the RBA rate decision on Tuesday and then we’ve got PMIS from ISM – first manufacturing on Wednesday, then services on Thursday. Then surrounding those we’ve got the big US employment data –first ADP midweek and of course non-farm payrolls on 

So the first reason the Dow could hit a new high next – after the S&P 500 and Nasdaq have already done so this year is the Dow’s reshuffle. The Dow added Salesforce, which just announced profits that smashed expectations in the second quarter. The index removed Exxon Mobil, which has been a top underperformer this year as Big Oil Company profits have been battered by the slump in the price of oil. If you add shares that are going up – and remove the shares where prices are going down – you have what is called a ‘selection bias’ which will tend to help the index go up over time.

The second reason is sector rotation. It’s coming to the end of summer, which can be a good time to review the performance of different stock market sectors. If we look at the S&P 500, it has been technology – higher by 28%- and Consumer discretionary – which is basically Amazon – up by 23% as the big winners this year. Those sectors are poorly represented in the Dow. Energy and Financials however have been top sector decliners- and are heavily represented in the Dow. If investors were to switch into shares of perhaps middle performers like industrials and materials- then the performance of the Dow would be closer to the S&P and the Nasdaq.

The third reason is don’t fear all-time highs! According to Virtus investment partners, on average, the performance for the S&P 500 is better after 6, 12 and 24 months from a record high than all other days. If the S&P 500 continues to move higher, the Dow can ride that bull market wave higher with a delayed record high for itself.

Right thanks everyone, good luck trading and make sure to subscribe to our channel so you don’t miss the next video.