Dow Holds On to 20,000—by the Skin of Its Teeth

Vital Signs

The Dow Jones Industrial Average needed a strong finish on Friday to end the week right back where it had started—above 20,000.

Stocks began the week on the wrong foot, with the Dow dropping 229.65 points on Monday and Tuesday. Whether because the market was reacting to President Donald Trump’s travel ban, as some observers suggested, or earnings disasters from companies like United Parcel Service(ticker: UPS) and Under Armour (UAA), was immaterial—stocks looked headed for their first 1% weekly drop since early November.

And then they weren’t. Trump’s decision on Friday to roll back regulations on banks played a big role in getting the market’s juices flowing, asGoldman Sachs Group (GS) and JPMorgan Chase (JPM) soared 4.6% and 3.1%, respectively. The Dow finished up 186.55 points but close to flat on the week, something that “makes all the sense in the world,” says Greg Woodard, senior analyst at Manning & Napier. “The market is moving on every bit of political news.”

All told, the blue chips finished the week close to where they began, down 22.32 points, or 0.1%, at 20,071.46. The Standard & Poor’s 500 index and the Nasdaq Composite both ticked up 0.1%, to 2,297.42 and 5,666.77, respectively.

It wasn’t all due to Trump, of course. On Wednesday, the Federal Reserve elected not to raise interest rates. No surprise there, but it also didn’t signal whether or not it would be raising rates in March.

That decision looked sound after Friday’s release of the January payrolls report, which revealed a large increase in jobs but muted wage growth. That would seem to indicate little inflation pressure, something that could allow the Fed to remain on hold—and buy investors time to see how Trump’s policies play out. “It was very much a wait-and-see message,” says Jason Pride, director of research at Glenmede.

But what are we waiting for? Many investors appear to assume that the next market move will be higher and that they will be able to see the next downturn “coming a mile away,” says Adam Parker, chief U.S. equity strategist at Morgan Stanley. “We are worried there is a potential arrogance in adopting this view.”

He points out that just over a year ago, stocks were still trying to find a bottom following a plunge that left nearly everyone shell-shocked—and that the S&P 500 has gained 20% during the last 12 months. “How can anyone be more bullish now?” Parker asks.

It’s a good question.

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