The Dow Jones index hit a fresh record high, adding another 0.3% on Wednesday. This is in contrast to the Nasdaq 100 index, which declined 0.54% to post a second straight day of losses, while the S&P 500 was little changed after the latest US cash session.
The Dow has been finding support around the psychologically-important 30,000 mark in the early stages of 2021, as its 50-day simple moving average continues guiding the index upwards.
With its 14-day relative strength index (RSI) yet to breach into overbought territory, coupled with the bullish momentum indicator (MACD), it suggests that this index still has more room to climb, at least from a technical perspective.
Which stocks helped the Dow higher on Wednesday (17 Feb)? And why?
Retail and consumer-centric stocks such as Verizon (+5.24%), Home Depot (+2.01%), and Nike (+1.61%) were among the biggest boosters to the Dow Jones index on Wednesday. This was on the back of better-than-expected retail sales seen in the US economy last month. January’s retail sales figures grew at 5.3% compared to December, registering its fastest month-on-month growth since June 2020. That 5.3% print far exceeded market estimates of 1.1%.
The data indicates that US fiscal stimulus is doing its part in boosting demand and consumption levels in the world’s largest economy.
Congress has approved $600 checks in late December, which translated into double-digit gains for the likes of online shopping, furniture stores, and even electronic appliances sales. And with President Joe Biden having pledged $1400 checks as part of his proposed $1.9 trillion fiscal stimulus package, potentially by mid-March, the evidence suggests that household demand could see a further boost next month, and help advance the stocks of companies exposed to the retail sectors.
January’s industrial production also came in at a better-than-expected rate of 0.9%, which suggests the US recovery momentum remains intact. Chevron (+3%) was another big contributor to the Dow’s mid-week gains, riding on the back of higher oil prices. US crude is now at its highest levels since January 2020, having already breached the $60/bbl mark this week. The surge in oil prices is largely due to the polar vortex in the States which has disrupted supplies while ramping up demand for heating fuels.
What could bring this party in US stocks to a halt?
But some segments of the markets are already skeptical about how much higher stock markets can go, considering the rise in Treasury yields. For context, 10-year Treasury yields have been steadily rising since August from that 0.5% region, with US stock indices rising in tandem. But 2021 has seen a supercharged advance in Treasury yields.
Yields on the 10-year have risen by as much as 40 basis points so far this year, breaching 1.3% this week. Much of this is due to the optimism surrounding the US economic outlook, and the recovery has been aided by multiple injections of fiscal stimulus and of the Covid-19 vaccine.
As the US outlook improves, Treasury yields rise. So too do the chances of the Fed paring down its support for the US economy and financial markets. And when the Fed does indeed taper, that’s seen as a negative for stocks markets, given that policymakers would then be choking the flow of easy money. Also, should yields keep rising from current levels, they then become more attractive for investors once more, who then might be tempted to revert funds back into those assets at the expense of equities. The timing of this pivot, in either the Fed’s stance or in investors’ asset allocations, all remains subject to debate, and markets are likely to contend with conundrum for a while more.