Dow Jones broke above the 30,000 level one week ago. When the Pfizer-BioNTech vaccine news hit the wires, the Dow Jones index witnessed one of the biggest jumps this year so far. On the chart below, the strong green candlestick from 28,800 to over 30,000 reflects the optimism in the market.
We all know that financial markets trade at a forward. Also, investors are aware of the predicting powers of the stock market for future economic growth. Only this time, it is also feasible that we will see strong economic growth in 2021 as all factors point in the same direction.
Optimism Drives the Stock Market Higher
To start with, Trump lost the elections. With that, the new infrastructure spending promised by Biden will have a strong impact on future economic growth.
Next, the United States households have a high savings rate. During the pandemic so far, the savings rate increased as disposable income decreased. It had to do with economic uncertainty. However, now that a vaccine is on the horizon, the savings rate is expected to decline significantly. Therefore, higher spending should further boost economic growth.
Moving forward, other vaccines appear. Moderna just announced even better results for its phase 3 trial on the vaccine it works on. Other pharmaceutical companies are on the way to announcing their results, with likely similar performances.
Finally, let us not forget the Fed. It vowed to use all its tools to boost the economy further, and it will. It is expected to ease some more in December, giving stocks another reason to move higher.
Dow Jones Technical Analysis
Aggressive bulls may want to just be on the long side on the perspective of a pennant pattern forming just below 30,000. On a break higher, the 31,500 level is good enough for the take profit, while the lowest point in the pennant invalidates the short-term trade.
Conservative bulls may want to give the bullish scenario more room to evolve. As such, they should focus more on the series of higher highs and higher lows – as long as it remains in place, the market should keep rising.
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Dow Jones 4h Chart
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