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Why Key Wall Street Players Believe Dow Rally is Just Getting Started

Last Updated September 23, 2020 1:19 PM
Joseph Young
Last Updated September 23, 2020 1:19 PM
  • Dow Jones Industrial Average dropped by 268 points on December 3.
  • Key Wall Street strategists say the dip will not last and recovery is imminent.
  • U.S. fourth-quarter scare has been dissolved, as the economy expands.

The Dow Jones pulled back from its record highs amidst growing geopolitical uncertainty. Wall Street analysts believe the dip in the stock market will be short-lived and the probability of a major December sell-off is slim.

Poor data from the U.S. manufacturing sector fueled the 268-point drop of the Dow Jones on December 2. The short-term slip of the equities market further intensified as China’s manufacturing sector expanded  for four consecutive months.

According to high profile analysts like Invesco chief global market strategist Kristina Hooper and Capital Wealth Planning advisor Jeff Saut, the market is expected to recover quickly from the minor correction.

Why Fast Dow Jones Recovery is Anticipated

The retreat of the Dow Jones this week has been mainly attributed to the global stock market pricing in significant progress  in the highly anticipated deal between the U.S and China.

Despite China’s positive manufacturing data, major Asian stock indices such as South Korea’s KOSPI and Japan’s Nikkei 225 fell by around 0.5% on average .

The vast majority of investors in the equities market expected a phase one deal to be signed by the year’s end. As negotiations get delayed, investors are starting to demonstrate growing concerns on whether the pressure on the markets can be alleviated before entering 2020.

Market Dip Was Always Going to Happen

Following a 2,400-point gain since August within a three-month span, Hooper said that the market was always vulnerable to a retreat.

However, Hooper emphasized that the pullback will not last a long time , as the Federal Reserve’s monetary policy maintains the productivity of businesses.

She said:

Any pullback would likely be very short-lived given how accommodative Fed policy is.

On CNBC’s Squawk on the Street, Saut and Jim Cramer similarly said that the recent Dow Jones dip is a holiday present to investors , noting that a year-end sell-off is not a concern.

Cramer said:

Nothing worries me in the sense of looking for a big sell-off in December.

Economic Growth Slowdown Isn’t Happening

Up until November, various technical indicators including two Federal Reserve gauges predicted the U.S. economic growth rate in the fourth quarter of 2019  to be close to zero.

Consequently, fears of recession intensified , causing a noticeable decline in sentiment  around the Dow Jones and the global stock market.

Natixis chief economist for the Americas Joseph LaVorgna said that the “growth scare” for the fourth quarter is unlikely to materialize. Unexpected expansion of the U.S. economy heading into 2020  may fuel the short-term recovery of the stock market.

LaVorgna said :

We went from a recession scare earlier this summer then to a growth scare to what I would argue is setting ourselves up for a pretty solid 2020, in part because the high-frequency data isn’t as bad as people thought.