Dow Jones Hits 29,000: What’s Driving Stocks and What’s Next

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The Dow Jones Industrial hit a new all-time high of 29,000. Driving the gains are positive views on the direction of the U.S. — Iran conflict, hopes for a phase two trade deal between the U.S. and China and high levels of cash held by investors, who are awaiting several key developments.

The Dow Jones has started the year modestly, up a half a percentage point, but is up 3.75% in the past month. All three major U.S. indexes have enjoyed a nice ride of late, with the S&P 500 and the Nasdaq up 4.5% and 7.6%, respectively, in the past month.

Some news has broken in the past month that Trump and Chinese leader Xi Jinping plan to meet for a phase two trade deal, after having agreed on a phase one deal that has already had its positive impact on stocks.

Trump also calmed fears of a heightened tensions between the U.S. and Iran. Investors fear war or military conflict, which would be generally damaging and costly, but also would likely disrupt Iranian oil production, bringing the price of oil higher and costs for some U.S. companies higher. But some strategists contest that the U.S. now produces enough to be “energy independent," while others note that stocks tend to perform well shortly after military conflicts arise. Many military conflicts do not lead to war.

While sentiment is positive and investors await fourth quarter earnings to trickle in during a 2020 year that is expected to see earnings growth of about 5% on the S&P 500, many investors are holding large portions of their portfolios in cash. This creates an environment ripe for periods of demand for stocks. "What’s going to drive us higher? asked John Ham, Advisor for New England and Retirement Group to TheStreet.

 “It’s going be those people parked on excessive amounts of cash that continually wait for that 5%, 10%, 20% correction that have to allocate capital,” Ham said. 

While some await a market correction, "in reality you have to allocate funds and you have to decide where,” Ham added.

Chris Zaccarelli, chief investment officer at Independent Advisor Alliance wrote “although the fundamentals are largely positive, it’s possible that we can have another pullback at any time,” a position shared by others strategists.

The average stock on the S&P 500 trades at roughly 19 times next year’s earnings, slightly frothy to some for this point in the economic cycle.

For now, here are the top three winners on the Dow Jones: