Don’t buy Your Dow 23,000 Souvenir Hats Yet

The Dow Jones briefly tipped over the 23,000 mark, the first time this has every happened since the founding of the index. Although the Dow closed slightly below the historic high, it did continue its sequence of 50 record closing. Even though it saw a retreat during the trading day, it still managed to close up 40.48 points.

 This not only continues record closings it also continues a nine-year bull market rally.

Although every new bullish month that passes analysts question whether it’s the last, US stock seems to continue growing. What is the reason and affects behind this bullish stock market? Another uncanny effect analysts are pointing out is the fact that the growth seems to be true for most US stocks, where usually some grow while other either remain unchanged and others drop.

Likely adding to the effect, last month’s US CPI came in under forecasts, 0.5% to 0.6%. In fact, consumer products saw their most significant jump in the past eight months with gasoline being fingered as the culprit. This jump in the price of gasoline was a result of Hurricane Harvey, hobbling Gulf Region refineries causing a drop in supply as demand remained unchanged (maybe even slightly increased due to people fleeing from the affected area). Data backs this also as gasoline prices shot up by 13.1% and 75% of the CPI increase was due to this.

Robert W. Baird & Co. Chief Analyst Bruce Bittles, a veteran of 51 years watching stock markets said in an interview that he’s never seen anything like this before and he has nothing proving that it will cease anytime soon. On the other hand, Bittles does mention that it at this point in history the stock market might be overvalued – and both historical evidence or a less than favorable Fed decision might change this fact.

A third rate hike may cause market volatility – as investors question whether to enter the record high stock market. This all might be a culmination of multiple signs of growth, even taking into small hiccups such as last month CPI coming in under expectations and a less than stellar NFP, consumer confidence is high, labor market data is showing growth also. Stocks could just be responding to these factors.

At this point and with the data at hand, it would take a significant event or geopolitical disruption – such as the escalation of the frictions between N. Korea and the US or complete derailment of Trump’s tax and economic reform – to put the stock market into “system shock”. Another risk is if investors all run to US stocks, pushing them into the overbought zone, forcing correction.