- DJIA rally goes against macro data but the same occurred in the 2009 bull market.
- Trump will get a deal done if congress won’t.
- Nonfarm Payrolls numbers remove some uncertainty from markets.
DJIA and all major stock markets just keep on rallying. The Dow Jones Industrial Average Index (DJIA) is marginally lower on Friday but on track to post a weekly gain of over 3% just below 22,300 points.
The Nonfarm Payrolls were good, not stellar but good and have at least removed some rumours of terrible data from the market. Stocks look overbought on a lot of metrics, but this disconnection from the real economy has a very recent precedence. During the financial crisis in 2009, the stock market kept on rallying for similar reasons, the DJIA nearly doubling in 2009 alone. With zero or negative real interest rates, cash and bonds are not an option for a return. So where is the alternative? This is helping stock markets again.
Market keeps rallying as news gets worse
The DJIA bottomed out on March 23. From then, the economic news and virus news just kept on getting worse. Now it looks like second waves are on the horizon for many countries, economic data releases globally have been poor, but markets keep on rallying. Sentiment is clearly bullish.
More stimulus to come
Markets remain anxious about whether Washington will get a further stimulus deal done with republicans and democrats still arguing. But Democrats have it all to lose. No deal and Trump rides to the rescue with an executive order stimulus and his election numbers go up, either way, another deal is getting done, sooner rather than later.
We will get a vaccine
Multiple candidates are in phase 3 trials. Fauci said on Friday in an interview with McClatchy news that a surge in virus cases could help speed up the development of a vaccine. Goldman Sachs said Thursday the stock market was under-pricing the possibility of a vaccine.
At the time of writing it looks like we are targeting a break of the DJIA June high 27,628. DJIA then looks towards 28,160 which has been tested a few times but is not too significant and after that, the market is looking for new highs 29,586. On the downside, the current range is bound by 25,000 and 24,562 the June low.