Are DOW mega cap and blue chip investors getting a little whimsical? What buoyed them today is concerning.
The Dow Jones index along with the S&P, Russell, and NASDAQ seem to be propelled by fewer and fewer stocks.
Today the Dow was lifted (+131 points or a half percent) by some appeasing statements from President Trump about the trade deal with China and on Apple’s decision to finally have its MAC computers use Apple’s own chipsets.
Investors should take the rising Dow with a grain of salt. Let’s discuss here why the DOW isn’t so hot, and why you should be looking instead at the NASDAQ forecast. You may want to pass by the 3 month to 6 month forecasts in favor of the 1 year to 5 year frame. Consider investing in tech stocks, Vaccine stocks, 5G stocks, or perhaps energy stocks.
The Dow rose a little but the rise makes little sense on these news tidbits. The tension between China and the US is severe, and China has no credibility at this point. More countries are deciding not to do business with the communists, and that will affect globalist investors obsession with the China supply chains.
Dow Top Gainers
Dow Jones stock prices. Screen shot courtesy of CNN.
Top gainers on the Dow today included Apple, American Express, Caterpillar, Home Depot, McDonalds, Proctor, Nike, Visa, and Walmart. All are companies with international ambitions. But in the coming protectionist era, it could be rough ride for Dow Jones stocks.
Dow stocks are highly dependent on China trade but China is not a good trade partner. Resentment toward China about the Corona Virus is real. India is planning to cut them out entirely. The pandemic has already cost the US several trillion dollars spent, and more in missing taxes. And it’s set the US up for a year of pain ahead.
This month it is technology stocks that are driving the markets, and APPL is one of those stocks. It could be the fear of a second wave isn’t as intense although new cases are rising across the US.
Also today, the flash U.S. service sector purchasing managers index rose to a 4-month high of 46.7 in June from 37.5 last month. The PMI shows the economy is recovering. It’s the rate of recovery that’s notable. Not all states are open and the recovery is just starting. It’s fortunate the Dow Jones is doing as well as it is.
“Overall, the V-shaped recovery provides further evidence that activity is now recovery fairly quickly,” said Andrew Hunter, senior U.S. economist at Capital Economics. The stronger gain in the factory sector compared with services industries suggests that manufacturing is recovery relatively more quickly. This runs counter to the hard data that showed retails sales rebounding much more strongly than industrial output. Chris Williamson chief business economist at IHS Markit, in MarketWatch report.
Dow Jones Outlook for Next 6 Months?
Given the size and complexity of manufacturing and materials logistics, the companies on the DOW 30 will need plenty of time to ramp up after the Covid 19 Shutdown. That pushes the horizon off to about 6 months before profitability returns.
From then on, with global economies recovering, interest rates low, and a booming latent demand, US industrial production should ramp up fast with inflation greasing the wheels. Shortage of all goods will happen during the spring and that demand will spawn new productions.
Forecast.org believes the Dow Jones will come back at a rather steep rate to about the 24500 level by October. However, the DJIA production does not correlate solely to the US economy, but rather to global demand and trade. They may be more exposed to global recession than S&P and NASDAQ.
Dow Jones Forecast. Screenshot courtesy of Forecast.org
What Factors Drive the DJIA Price?
As a weighted index of only 30 stocks, some might question whether the DJIA is a relevant index.
Dow Jones 30 Stocks include Apple, Pfizer, Walmart, Johnson & Johnson, Walt Disney, Nike among other huge corporations. Calling them industrials is a little misleading. Transportation and utilities stocks are not included in the DJIA and instead are in the Dow Jones Transportation Average (DJTA).
30 Stocks of the Dow Jones. Screenshot courtesy of Yahoo Finance.
Interestingly despite the recent stock crash, Walmart and Verizon are the only two DJ stocks which haven’t collapsed in this current bear market.
Whereas the Dow Jones average is a measure of the biggest companies, the S&P 500 index is more about the stock prices of big, but healthy companies — those with high market cap above $8.2 billion and a public float of 50%, and which have had positive earnings for the last 4 quarters. The S&P has 500 stocks which makes it a more reliable reflection of the stock market.
The Russell Index in contrast is a measure of 2000 small cap stocks. It provides a look at performance of small business in America.
Chart Courtesy of Yahoo Finance.
Dow Jones Top Gainers
Chart courtesy of Yahoo Finance.
Like the S&P, the Dow Jones index and forecast correlate to the US economy. When GDP rises, it reflects manufacturing, consumer spending, vacations, and other consumption spending and DJIA companies are usually involved heavily in that activity.
Each of the DJIA companies come from different sectors so it reflects earnings performance plus employment outlooks.
2020 Forecast for The DOW (Trading Economics)
Dow Jones DJIA Forecast. Screenshot courtesy of Tradingeconomics.
Gold, and other commodities aren’t a great alternative due a global slowdown. The energy sector is looking at an oil glut and falling prices in 2020. And falling interest rates can only aid American companies ability to compete.
Large institutional investors (i.e. hedge funds and mutual funds) invest heavily in these blue chips as a safe long term investment. These are big companies who hold monopoly market dominance. If anti-trust and anti-monopoly sentiments rise, these companies stand to be hit hardest (FAANGS). Some big name stocks are not in the Dow. Check the latest Google Stock price, Tesla Stock price, and Amazon stock price predictions.
The 30 DJIA stocks by themselves offer a very skewed perspective of US stock markets and the economy as a whole. See the 2021 stock market forecast for more perspective. In fact, many of these companies operate globally, and are therefore outside the real US economy, deeply affected by International trade deals.
Here are the Current 30 DJIA Stocks:
- 3M (NYSE:MMM)
- American Express (NYSE:AXP)
- Apple (NASDAQ:AAPL)
- Boeing (NYSE:BA)
- Caterpillar (NYSE:CAT)
- Chevron (NYSE:CVX)
- Cisco (NASDAQ:CSCO)
- Coca-Cola (NYSE:KO)
- The Walt Disney Company (NYSE:DIS)
- DowDuPont (NYSE:DWDP)
- ExxonMobil (NYSE:XOM)
- General Electric (NYSE:GE)
- Goldman Sachs (NYSE:GS)
- The Home Depot (NYSE:HD)
- IBM (NYSE:IBM)
- Intel (NASDAQ:INTC)
- Johnson & Johnson (NYSE:JNJ)
- JPMorgan Chase (NYSE:JPM)
- McDonalds (NYSE:MCD)
- Merck (NYSE:MRK)
- Microsoft (NASDAQ:MSFT)
- Nike (NYSE:NKE)
- Pfizer (NYSE:PFE)
- Procter & Gamble (NYSE:PG)
- Travelers Companies (NYSE:TRV)
- United Technologies (NYSE:UTX)
- UnitedHealth (NYSE:UNH)
- Verizon (NYSE:VZ)
- Visa (NYSE:V)
- Wal-Mart (NYSE:WMT)
DOW Could Pick Up in 2021
Although Dow performance has been very strong since President Trump took office, many believe the Dow Jones average will struggle until 2021. LongForecast.com predicts better performance right after the 2020 Presidential Election. They have the S&P and NASDAQ indexes rising about the same time.
Although the NASDAQ is forecasted to do much better. This makes sense as investment leaves the blue chips and is moved to profitable US tech stocks. The only country doing well now is the United States.
So far this year, the Dow Jones industrials have risen over 17% while the Nasdaq index is up 25% and the S&P 500 rose 19%. Great results, yet the usual fall season forecast is often subdued. Consumer sentiment is down and retail sales may falter. Interest rates and mortgage rate forecasts are likely to fall further, but we don’t know what the highly political FED will do.
DOW Reached Record Level
The DOW reached record levels this summer and if Trump were to give China a big, big break in a new bilateral trade deal, the DOW would move upward. The DOW will recover however, the markets for each of these companies is changing from global to US domestic. American consumers are the target for all companies.
Forecast.com Dow Jones Forecast to 2022
Longforecast.com’s adjusted outlook to 2022 is rather pessimistic, with the Dow predicted to fall to near 20,000. Does this suggest a fundamental shift of market share, revenue and power to smaller companies in the S&P and NASDAQ?
Screenshot courtesy of Longforecast.com
Dow Jones volatility is mimics the same path the prices and forecasts for the S&P or the NASDAQ. DJIA are all about political power and the primacy of the monopolies. Within Free Trade, the monopolies could do as they pleased and name their price. But the end of Free Trade and the enforcement of China tariffs has ended it.
The threat of data privacy legislation and punishment from Europe, Asia, and North American governments casts a shadow over Dow companies. Anti-monopoly action by the DOJ too threatens these big companies revenue picture.
Best Dow Jones Stock Picks
So far this year, the 5 best performing Dow stocks were Microsoft (up 35%), Cisco (up 32%), Visa (up 31%), American Express (up 31%), and Disney (up 29%) according to Yahoo Finance.
When President Trump was elected, the Dow Jones average rocketed higher as the chart shows. However, Trump was not about to support the profits of big multinationals who merely treated the US as their retail outlet. His campaign promise was to make America Great, drain the swamp, and grow the US economy.
The tariffs which Trump has imposed had the biggest impact on the NYSE Dow listed, big industrial stocks which primarily use cheap foreign labor to sell in advanced economies such as Europe and North America.
Politics Determines DJIA Predictions
This makes predictions of DJIA company stock prices a little bleak. Moving production and fulfillment channels is not an easy thing to do. Further many CEOs beleive political opposition to change will mean President Trump won’t be successful. They believe the status quo resistance globally will force things back to the pre-2016 conditions. They likely feel the turbulence and volatility of this big change will make voters turn against him.
If President Trump loses the election, it would mean a rapid sell off of US stocks and stock market crashes, as investors money flees the country. The 2020 recession or slowdown, could potential mean a real stock market crash, and the Dow industrials would be hit hard. It’s impossible to predict what will happen in the aftermath because the democrats don’t even have a leader yet. After frantically criticizing Trump for everything he did, they would likely have to pick up his ball and run with it.
As Trump persists in the Tariffs and production repatriation to the US, CEOs will be forced to begin building production facilities in the US. When this happens, a massive reinvestment in US companies will result which will improve consumer sentiment, growing retail spending too. But it’s a process that hasn’t begun yet. Until all hope of keeping China production is extinguished, the stock markets will be volatile.
Common sense, new government spending limits, and a $500 billion yearly trade deficit is something even the Democrats can’t sweep under the carpet. With protectionism sweeping the world, smaller US companies are likely to find themselves more competitive and agile, and able to get off the ground. Look for those companies who are willing to create US-based supply chains to do really well in 2020 and beyond. US stocks have the brightest outlooks. see out best stocks to buy for 2020.
Keep in mind that monopoly companies such as Amazon, Google, Sony, Microsoft, and Apple can crush any small to mid cap threats to their dominance. Utility companies in electric, transport, pharmaceuticals, and telecommunications are positioned best to benefit from the US economic forecast.
The most recent round of tariffs imposed September 1st means blue chip companies that import products or parts into the US must bring production back to the US. The Dow Jones average has been resilient however, despite the threat to their cheap labor sources. While some threaten to move production to Vietnam, India, or Mexico, it’s only a temporary evasion of taxes. Inevitably, production must return to the US.
Is it wise to invest in Dow Jones stocks? Likely not. It’s wiser to look at top performing US stocks on the S&P, or small caps on the Russell Index. The NASDAQ index as well holds stocks with better upside, given technology won’t fail even during a recession. Those companies using AI (artificial intelligence) should be of particular interest to you.
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