The Dow Jones index has surged to an all-time high (ATH), bringing the total year-to-date gains to more than 15%. It has almost doubled in the past five years. The same trend has been seen in the other leading indices like Nasdaq 100 and S&P 500. Meanwhile, the fear and greed index has moved from the extreme fear level last week to 32.
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Why Dow Jones is at an all-time high
Several catalysts have propelled the Dow Jones to an all-time high. First, corporate earnings have been relatively strong. Banks like Goldman Sachs, Morgan Stanley, and JP Morgan reported strong results, signalling that the American economy is doing well.
Similarly, other companies like PepsiCo, Tesla, and Philip Morris published strong results. In all, according to FactSet, 24% of all companies in the S&P 500 index have published their quarterly results. 88% of these firms have reported a positive EPS surprise while 86% of them have reported a revenue surprise. If this trend continues, it will be the best figure since 2009. Looking ahead, the Dow will soon react to earnings from firms like Apple and Microsoft.
Second, real yields have dropped substantially. Yesterday, they crashed ti minus 1.127%, meaning that holders of US debt are at a loss. It also signals that that inflation expectations have fallen, meaning that the Fed will not have the urgency to boost rates. This is usually a positive thing for the Dow Jones and other top indices.
Third, the Dow Jones has risen because of hopes of an infrastructure deal in the US. While negotiators have hit a wall, there are signs that they will reach an agreement soon. Such a package will be a positive thing for the Dow Jones. Further, with the fear and greed index rising, there are signs that investors will start putting their dry powder to work by buying equities.
Dow Jones technical analysis
Turning to the weekly chart, we see that the DJIA index has been in a strong upward trend in the past few years. Along the way, it moved past the important resistance at $29,455. It is also being supported by the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has been in an upward trend.
Therefore, the index will likely maintain the bullish trend as bulls start focusing on the $36,000 level. On the flip side, a move below $33,000 will invalidate this prediction.