By CCN: Throughout the past month, the Dow Jones Industrial Average has overcome significant adversity to recover by nearly 1,000 points. However, despite surging nearly 4 percent to Tuesday's close at 26,452.66, strategists have struggled to identify strong catalysts that could propel the DJIA further…
By CCN: Throughout the past month, the Dow Jones Industrial Average has overcome significant adversity to recover by nearly 1,000 points. However, despite surging nearly 4 percent to Tuesday’s close at 26,452.66, strategists have struggled to identify strong catalysts that could propel the DJIA further toward its all-time high.
Now, Larry Fink says he has the answer.
Speaking to FT, Fink – the CEO of $6 trillion asset manager BlackRock – said that despite the stock market’s strong recovery from its last 2018 lows, investors remain underinvested in equities. With a lot of money still on the sidelines, there is plenty of ammunition to spark another leg of the decade-long rally in the Dow, S&P 500, and Nasdaq.
“There’s too much global pessimism. People are still very underinvested. There’s still a lot of money on the sidelines, and I think you’ll see investors put money back into equities,” Fink said.
In fact, according to data from EPFR, approximately $112 billion has flown into bond funds while investors withdrew $90 billion from equity funds, demonstrating a lack of confidence in the short-term performance of the Dow Jones and the rest of the U.S. stock market.
The fear possibly stems from the current value of many stocks that may be too expensive for retail investors and existing geopolitical risks arising out of the U.S-China trade tension.
In recent months, investment firms and banks have seen signs of a resurgence of the equities market, with BlackRock, the largest asset manager in the world, seeing an inflow of a staggering $65 billion.
The barrier standing between retail investors and the U.S. equities market seems to be whether a moderate jump from the Dow’s present 26,000-point level can be justified with clear near-term stimuli.
Analysts say that a comprehensive trade deal between the U.S. and China could act as a strong catalyst for the next phase of the Dow recovery, especially if it synergizes with a positive stance from the Fed.
John Williams, the president of Federal Reserve Bank of New York, said this week that central bank policy is currently well-positioned, alluding the lack of appetite of the Fed to increase the benchmark interest rate in the near future.
“Monetary policy is really well positioned right now in terms of the short-term interest rate. We are in a good place, the economy is in a good place and with the balance-sheet normalization coming to an end not that far off in the future, I think that means the position of monetary policy is good,” Williams said.
As CCN reported earlier this week, the U.S. economy generally remains strong with solid job numbers and positive growth of banks in the first quarter of 2019.
At this juncture, wherein most investment firms and banks are performing strongly as a result of a positive Fed policy and the state of the U.S. economy, one single catalyst may push the Dow over the line – a robust conclusion to Donald Trump’s trade war with China.
With major hurdles in the U.S.-China trade talks such as industrial policy change requests and enforcement policy close to being cleared, industry executives like Fink remain optimistic that capital could soon flow back into equities and launch the stock market even higher.
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Last modified: January 10, 2020 3:28 PM UTC