Dow Jones index poised to breach 20,000 points, setting milestone

US markets slip marginally as trading starts, but stay within touching distance of the psychologically important level

PUBLISHED : Wednesday, 21 December, 2016, 10:52pm
UPDATED : Wednesday, 21 December, 2016, 11:00pm

The Dow Jones Industrial Average was poised within striking distance of the 20,000-point milestone as trading got under way in the US on Wednesday.

Strong US job figures and the US Federal Reserve’s foreshadowing of three rate increases in 2017 have attracted capital back to American equities, pushing the benchmark index to within a hair’s breadth of the as yet unbreached level.

Five minutes after trading began, the Dow Jones was down 0.01 per cent at 19,972.26 from yesterday’s record-high close of 19,974.62. Meanwhile, the S&P500 slipped 0.02 per cent to 2,270.28, still close to its all-time high set a week earlier, and the Nasdaq was down 0.01 per cent at 5,483.35, having advanced 0.49 per cent on Tuesday.

Asian equity markets were mixed ahead of trading in US markets, with indexes declining in Japan, Taiwan, South Korea, India, Thailand and Indonesia. The Hang Seng Index rose 0.4 per cent, while the H-Shares Index rose 0.5 per cent, and the CSI300 Index in China rose 0.9 per cent.

European markets were mixed in early trading before the Dow’s record, with the FTSE100 index down by as much as 0.3 per cent, while the CAC index in France was down 0.4 per cent and Germany’s DAX was up by as much as 0.1 per cent.

“The market expects the US economy to enter a new era of expansion under the new president,” said

Ben Kwong Man-bun, director of KGI Asia. “Trump’s economic policies on the campaign trail had promised to boost corporate earnings and introduce inflation to drive economic growth. This has supported the US stock market and the US dollar.”

The US dollar strengthened to its highest in 14 years against major currencies on the back of Fed chair Janet Yellen’s comment that the US central bank will raise rates in 2017.

“The US dollar and stock market rally will continue for a while,” Kwong said. “The other currencies and stocks are full of uncertainties, as Britain will soon have its Brexit negotiation with the European Union while Europe has terrorist attacks and the yen is haunted by economic uncertainties.”

Against the strong dollar, the renminbi strengthened to 6.9493 per dollar.

Still, the US market rally will taper off once Trump takes office, Kwong said.

“When Trump becomes president and starts implementing his policies, it will be time to see the market’s correction,” Kwong said. “When people find out that his policies may not be able to boost the economy as expected, it will be time to see the market turn around.”

The Hang Seng Index rose for the second day on Wednesday, led by gains among consumer stocks and energy companies. The CSI300 Index in China rose for the first time in three days. Shanghai’s Composite Index rose 1.1 per cent to a five-day high of 3,137.43, while the Shenzhen Composite Index rose 0.7 per cent to an eight-day high of 1,996.03

Louis Tse Ming-kwong, director of VC Brokerage, also said the Dow could stay above 20,000 before Trump’s inauguration in January but expects traders to take their profits afterwards and exit the market.

“It’s inevitable that there will be some profit taking in January, since many US stocks are now trading at very high valuations,” he said.