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Dow Jones Sets New All-Time High: More Upside for ETFs?
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The Dow Jones hit a new intraday record on Oct 20 thanks to upbeat earnings. Estimates-beating earnings results from the likes of Verizon (VZ), Anthem (ANTM) and Abbott Laboratories (ABT) extended a streak of strong quarterly earnings releases started with the big banks last week (read: Banking Earnings Upbeat: Time to Buy Financial ETFs on Value?).
Notably, a few big banks like Goldman Sachs and J.P. Morgan are there in the Dow Jones index. Verizon also gets a place in the said blue-chip index. Verizon was one of the biggest gainers in the Dow Jones on Oct 20, surging 2.4% after earnings topped estimates for the third quarter. The telecom giant boosted its forecast because of growing 5G adoption.
Let’s delve into what drove the recent surge in the Dow Jones and if the rally can sustain.
Upbeat Earnings
The ongoing earnings season has been upbeat. For the 69 S&P 500 members that have reported Q3 results through Oct 20, total earnings and revenues are up +35.3% and +12.9%, respectively from the same period last year, with 87.0% beating EPS estimates and 72.5% beating revenue estimates. The proportion of these 69 index members beating both EPS and revenue estimates is 66.7%. The Q3 earnings and revenue growth rates and the EPS and revenue beats percentages for these 69 index members is above historical averages.
Oil Rally
Furthermore, it has been noticed lately that the Dow Jones shares a deep relationship with oil price movement. Though the energy sector rally spreads optimism over the broader market as a whole, in most cases, on a particular day of oil surge, the rise in the Dow Jones is steeper than that of the S&P 500, or vice versa. WTI crude fund United States Oil Fund, LP (USO - Free Report) added about 1.22% on Oct 20. The oil ETF returned about 17.2% past month.
Focus on Blue-Chip Stocks
The Dow Jones assigns greater weight to higher-priced stocks, which is one of the reasons behind the recent surge. Overall, blue chip stocks are performing exceptionally of late. For example, the S&P 500 is up 17.2% past month while the Russell 2000 has gained 4.7% during the same time frame. Now, since the Dow Jones is a price-weighted index, bullishness over this high-priced large-cap cohort has made the case for the Dow investing more appealing.
Uptick in U.S. Manufacturing Activity
The U.S. manufacturing index rose to 61.1 in September from 59.9 in August. Readings above the neutral level of 50.0 indicate expansion in a sector. The reading has increased for a second straight month and above market expectations of 59.6. The latest reading signaled one of the strongest rates of expansion since 1983, boosted by solid increases in production (59.4 vs 60.0 in August) and new orders.
“Business Survey Committee panelists reported that their companies and suppliers continue to deal with an unprecedented number of hurdles to meet increasing demand," Timothy Fiore, chair of the Institute for Supply Management, said in a press release. Overcoming the supply chain issues has been great for the manufacturing industry.
Expectations of Upbeat Holiday Sales (Especially Online)
Online retail sales breached all records in 2020. This year online sales are expected to grow further, up to 10% in the United States and 7% around the globe. Consumers are likely to pay 20% more for their holiday gifts as retailers and manufacturers will have to undergo an extra $223 billion in the cost of goods, per a source.
ETFs in Focus
Therefore, investors seeking a momentum play, can bet on SPDR Dow Jones Industrial Average ETF (DIA - Free Report) (a Zacks Rank #2 (Buy), Invesco Dow Jones Industrial Average Dividend ETF (DJD - Free Report) (a Zacks Rank #3 (Hold)) and iShares Dow Jones US ETF (IYY) (Zacks Rank #2 (Buy)). Investors can also settle for leveraged Dow ETF plays as long as the trend favors them. Here, ProShares Ultra Dow30 (DDM - Free Report) and ProShares UltraPro Dow30 (UDOW - Free Report) are a couple of choices.
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Dow Jones Sets New All-Time High: More Upside for ETFs?
The Dow Jones hit a new intraday record on Oct 20 thanks to upbeat earnings. Estimates-beating earnings results from the likes of Verizon (VZ), Anthem (ANTM) and Abbott Laboratories (ABT) extended a streak of strong quarterly earnings releases started with the big banks last week (read: Banking Earnings Upbeat: Time to Buy Financial ETFs on Value?).
Notably, a few big banks like Goldman Sachs and J.P. Morgan are there in the Dow Jones index. Verizon also gets a place in the said blue-chip index. Verizon was one of the biggest gainers in the Dow Jones on Oct 20, surging 2.4% after earnings topped estimates for the third quarter. The telecom giant boosted its forecast because of growing 5G adoption.
Let’s delve into what drove the recent surge in the Dow Jones and if the rally can sustain.
Upbeat Earnings
The ongoing earnings season has been upbeat. For the 69 S&P 500 members that have reported Q3 results through Oct 20, total earnings and revenues are up +35.3% and +12.9%, respectively from the same period last year, with 87.0% beating EPS estimates and 72.5% beating revenue estimates. The proportion of these 69 index members beating both EPS and revenue estimates is 66.7%. The Q3 earnings and revenue growth rates and the EPS and revenue beats percentages for these 69 index members is above historical averages.
Oil Rally
Furthermore, it has been noticed lately that the Dow Jones shares a deep relationship with oil price movement. Though the energy sector rally spreads optimism over the broader market as a whole, in most cases, on a particular day of oil surge, the rise in the Dow Jones is steeper than that of the S&P 500, or vice versa. WTI crude fund United States Oil Fund, LP (USO - Free Report) added about 1.22% on Oct 20. The oil ETF returned about 17.2% past month.
Focus on Blue-Chip Stocks
The Dow Jones assigns greater weight to higher-priced stocks, which is one of the reasons behind the recent surge. Overall, blue chip stocks are performing exceptionally of late. For example, the S&P 500 is up 17.2% past month while the Russell 2000 has gained 4.7% during the same time frame. Now, since the Dow Jones is a price-weighted index, bullishness over this high-priced large-cap cohort has made the case for the Dow investing more appealing.
Uptick in U.S. Manufacturing Activity
The U.S. manufacturing index rose to 61.1 in September from 59.9 in August. Readings above the neutral level of 50.0 indicate expansion in a sector. The reading has increased for a second straight month and above market expectations of 59.6. The latest reading signaled one of the strongest rates of expansion since 1983, boosted by solid increases in production (59.4 vs 60.0 in August) and new orders.
“Business Survey Committee panelists reported that their companies and suppliers continue to deal with an unprecedented number of hurdles to meet increasing demand," Timothy Fiore, chair of the Institute for Supply Management, said in a press release. Overcoming the supply chain issues has been great for the manufacturing industry.
Expectations of Upbeat Holiday Sales (Especially Online)
Online retail sales breached all records in 2020. This year online sales are expected to grow further, up to 10% in the United States and 7% around the globe. Consumers are likely to pay 20% more for their holiday gifts as retailers and manufacturers will have to undergo an extra $223 billion in the cost of goods, per a source.
ETFs in Focus
Therefore, investors seeking a momentum play, can bet on SPDR Dow Jones Industrial Average ETF (DIA - Free Report) (a Zacks Rank #2 (Buy), Invesco Dow Jones Industrial Average Dividend ETF (DJD - Free Report) (a Zacks Rank #3 (Hold)) and iShares Dow Jones US ETF (IYY) (Zacks Rank #2 (Buy)). Investors can also settle for leveraged Dow ETF plays as long as the trend favors them. Here, ProShares Ultra Dow30 (DDM - Free Report) and ProShares UltraPro Dow30 (UDOW - Free Report) are a couple of choices.