Dow Talking Points:
- The Dow charged higher on a second day of Powell testimony to overtake 27,000 on its way to a fresh record high
- While a climb in US indices is not unusual, the Dow's particular rally relative to the typically-favored SPX and Nasdaq is noteworthy
- Sector or individual Dow 30 component performance can offer explanation, but that undermines the potential for a steady risk run
See how retail traders are positioning in EURUSD, USDCHF, USDJPY and other Dollar-based majors using the DailyFX speculative positioning data on the sentiment page.
The Dow Surpasses Another Mile-Marker at 27,000 for Another Record High
Risk trends were still favoring the bullish appetites that we had seen nurtured over the past month, but progress was more uneven through Thursday's session than any other time this past week. Nevertheless, in this mix, the benchmark Dow Jones Industrial Average managed to earn a new record high taking out 27,000. This happens to be the most popular US index among the old hand and with investors outside the United States. As such, the charge reverberates in the speculative rans. If we were to take this benchmark 'at its word', it would seem that speculative appetite is firmly on the rise.
Chart of Dow Jones Industrial Average (Daily)
Noticeably, Less Impressive S&P 500 and Nasdaq Moves
Yet, when we start to compare the Dow's performance to other benchmarks, a contrast in pace becomes very apparent. Looking outside the confines of US equities, we find global equities were spinning their tires on the day while emerging market, high yield and carry assets were similarly struggling. However, we don't need to look so far afield to recognize that something was amiss with this past session's isolated progress. The other US indices failed to find meaningful purchase of their own. The broad S&P 500 failed to set a new intraday high and instead closed Thursday with a doji and an 'inside day' (whereby the high and low of that session fit within the high and low of the previous day). That is the epitome of indecision. As for the tech-heavy Nasdaq 100, the past session was actually registering a loss for the day. How are we to register genuine enthusiasm against this backdrop?
Chart of Nasdaq 100 (Daily)
Outperformance for the 'Blue-Chip' Index Doesn't Bode Well for Speculative Continuation
Given the leader status from the Dow, there will be a natural default by many global speculators to read an innate enthusiasm through this past session. That said, the deviations from other risk-dependent assets speak to underlying issues in value. The most concerning conflicts are found in the contrasting performance in other key US indices. The S&P 500's position as a more heavily traded benchmark (through derivatives like the SPY, emini futures and CFDs), deserves critical evaluation. However, it is the Nasdaq's lack of conformity to this past session's Dow performance - must less its ability to lead - that is more worrisome. In the past three to four years of the record breaking bull run for US markets, tech sector performance has repeatedly drawn the greatest enthusiasm. While confidence inevitably shifts for running risk trends, these are not exactly reassuring times to take up another motivator for speculative reach.
Chart of Nasdaq to Dow Ratio (Daily)
A Long Divergent Small Cap to Large Cap Divergence Matches Uneven Global Risk Showings
Beyond a trip to the return potential in US equities, the concern to be derived from disparate indices' performance hints at deeper troubles to the foundation of risk seeking. US shares have led the charge in sentiment for years as appetite has sought out momentum relative to income interests such as dividends or yields. Throughout the charge, momentum has inspired more participation for capital gains than any systemic appetite for slow returns. Yet, the recent shudder in the performance contrast between the likes of the Nasdaq and Dow isn't the first time this issue has arisen. In fact, the small-cap Russell 2000 index has long diverged from the S&P 500's performance. So what does this mean for equities, US markets and even global risk trends? We discuss that in today's Quick Take video.
Chart of Nasdaq-to-Dow Ratio (Daily)
If you want to download my Manic-Crisis calendar, you can find the updated file here.
