The Dow Jones Industrial Average, the most closely followed benchmark index on Wall Street, is quickly approaching 25,000 points, and many traders believe that this spectacular milestone could be reached by the end of 2017.
According to a recent report published by financial news network CNBC, the Dow at 25,000 points is something that traders see as being feasible and reflective of what is currently happening on Wall Street and in the District of Columbia. The tax reform package that has been formulated by th Republican party with the support of the White House has been warmly received by corporate America, and recent earnings reports have also been positive. Furthermore, the unemployment rate of 4.1 percent shows no sign of increasing.
Traders are anticipating a “Santa Claus rally,” a term used by Wall Street insiders to describe a stock buying spree during the holidays. This type of rally is fueled by overall optimism towards the end of a boom cycle; quite a few analysts estimate that the strong gains by the Dow and the S&P 500, another benchmark stock index, could be coming to an end in 2018.
With a Santa Claus rally, active traders keep a close eye on the actions taken by institutional investors, hedge funds and investment banking firms in December; if there are clear signs of optimism, traders will place large buy orders. Investors who thrive on technical analysis will look for signs of a Wall Street behavior known as “herd instinct,” whereby traders will jump on a trend and follow each other’s market positions.
The Dow’s push towards 25,000 points will certainly be boosted by a Santa Claus rally, particularly if the two versions of the tax reform package are reconciled in the next two weeks. President Trump has expressed his firm intention to quickly sign the legislation; plus, he has also been a major cheerleader of the stock market despite the fact that many Wall Street leaders have not disguised their dislike of the present administration.
Cautious analysts are warning traders against taking on too much risk; savvy investors implement stop loss features when they take market positions in the midst of a Santa Claus rally. These are the same analysts who believe the stock market is due for a sharp correction, which could arrive in February or March 2018. There is also the risk of the Special Counsel investigation into the Trump election campaign; political instability in the White House will certainly affect Wall Street.