The Dow Jones Industrial Average (DJIA) awaits a greater bull market in 2020 says high profile Wall Street executives and strategists. Despite record-high stocks, investors are overlooking the momentum, technicals, and liquidity of the market.
#1: Investors are not trusting the current Dow Jones rally
According to Julian Emanuel, managing director and chief equity and derivatives strategist at BTIG, many investors still do not believe in the bull market.
Based on data from Schroders, the $9 billion British investment giant, the current bull market of the Dow Jones is the longest ever yet by a large margin.
Schroders analyst David Brett said:
It began in March 2009 and has been fuelled by record-low interest rates and the easy monetary policies adopted by central banks which has made it cheap to borrow money.
Despite the clear momentum of the Dow Jones, Emanuel emphasized that the majority of investors are still cautious and lack confidence in the market.
Eventually, as the market enters a new year, he said that the S&P 500 is likely to surge by another 22%, which would further boost the sentiment around the Dow Jones.
#2: Strong technicals
Based on an indicator called the “bottom-up model,” Piper Jaffray chief market technical analyst Craig Johnson said that the U.S. stock market still has significant room to expand in the coming year.
With expectations of a 20 multiple on consensus earnings, an additional 11% growth in the S&P 500 is anticipated by prominent technical analysts and chartists.
If the momentum of the stock market and the Dow Jones are supplemented with strong earnings in the first quarter of 2019, it is likely to sustain the longest bull market in modern history.
Crucially, Johnson noted that bull markets do not wear off due to time. The stock market is not going to correct solely because it has been on an upward trend for a long time.
#3: Liquidity will drive stocks
Liquidity continues to be the most important narrative around the U.S. stock market amongst high net worth investors and investment firms throughout 2019.
Although many have attributed the rally of the Dow Jones in the final several quarters of 2019 to the U.S.-China deal, liquidity has played arguably a larger role in securing momentum.
Kevin Caron, portfolio manager Washington Crossing Advisors, said that growing liquidity in the U.S. market will help drive the Dow Jones even further in 2020.
We’ve had a really good year this year in the stock market and a lot of it has been driven by liquidity and central bank action. Not so much in terms of earnings growth. In order to get a good year to follow 2019, we really need to see some better numbers on manufacturing and on business expectations. And trade is a very important factor.
With progress on the trade talks and no rate cut on the horizon, liquidity will continue to act as a fundamental catalyst for market growth throughout 2020.