Futures on the Dow Jones Industrial Average (DJIA) are up strongly early Friday morning as the stock market looks set to close the week on a high on the back of the Santa Claus rally. The Dow finished Thursday strongly with a 100-point rally, and the futures action today suggests that an even better session might be in the cards.
The Dow and the broader stock market are unlikely to be impacted by any earnings reports or economic data points today. There is no action on those fronts. So it is likely that investors will continue to buy more stocks as the gloominess related to the trade war and broader economic downturn has receded into the background.
Dow Jones futures are up a whopping 89 points or 0.31 percent, as at 6.19 am ET. This indicates that a terrific day for the stock market is in the cards.
S&P 500 futures are also up 0.25 percent while Nasdaq Composite futures are also in the green with pre-market gains of 0.35 percent.
The Dow and the broader stock market are likely to be positively impacted by developments on the U.S.-China trade deal. According to a Reuters report, the Chinese commerce ministry said yesterday that Beijing and Washington are in close contact with each other, going through key details before the pact is officially signed.
President Trump is also indulging in some showboating on his part. He says that the two countries will hold a ceremony to ink the deal, which is expected to be completed in January.
The limited trade deal signed between the U.S. and China seems to have sparked a wave of investor enthusiasm as people are buying stocks by dumping safe-haven assets such as gold. That’s not surprising as the broader stock market has been driven up by positive jobs data, strong economic growth, and the fact that the Chinese have resumed imports from the U.S. on a war footing.
The Chinese will also cut import tariffs beginning Jan. 1, indicating that demand for U.S. products is likely to increase further. The bottom line is that investors’ risk appetite seems to have increased thanks to the trade deal development, as well as the other headline data that shows that the U.S. economy is holding strong.
But cynics believe that the latest stock market rally is a bubble that might burst in 2020. AdvisorShares CEO Noah Hamman told Yahoo! Finance in an interview:
It will continue on for a while for as long as we see we have an indication that we could have lower rates ahead possibly though with a pause, but with an increasing Fed balance sheet.
Hamman thinks the Fed’s actions are “driving up prices everywhere.” He does caution that if the Fed signals a change in interest rate policy by mid-2020, the bubble could explode.
It could be a huge bubble, and we could see huge declines — 50% and 60% declines that happen quickly before you have a chance to react to them.
But the good part is that the analyst believes that the stock market rally seems sustainable until and unless a Fed action arrives. This means that the Dow could continue soaring, but investors should be wary of any potential pitfalls along the way.
Last modified: January 22, 2020 11:40 PM UTC