The Dow Jones remarkable bull run has hit a wall even as the fear and greed index rises. The index is trading at $35,443, which is a few points below its all-time high. The same trend has happened in the S&P 500 and Nasdaq 100 indices that are trading at record highs.
Explaining the Dow Jones performance
The Dow Jones has had a spectacular rally in the past few months. The index has risen by more than 20% in the past 12 months and 17.5% year-to-date.
There are several catalysts to this performance. First, Congress has passed a multi-trillion spending package since the pandemic started. Precisely, it has passed more than $5 trillion and is on track to pass another $1 trillion infrastructure package. These funds have flowed into stocks and pushed their prices substantially higher.
Second, the Federal Reserve has left interest rates low and is printing $120 billion every month through its open-ended quantitative easing program. All this liquidity has led to all types of inflation, including that of stocks. Indeed, the S&P 500 PE ratio has jumped to more than 40 and is close to levels not seen since the Dot com bubble.