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Can Dow ETFs Stay on the Record Breaking Path?

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The Dow Jones industrial average appears to be on cloud nine, having crossed 19,000 for the first time in its 120-year history on November 22. Not only Dow, the other two key U.S. equity gauges — the S&P 500 and NASDAQ Composite — also hit record highs.

The tailwind was the Trump-induced rally triggered off by the pledges of higher fiscal spending and tax cuts. Specially, the industrial sector deserves a special mention on the president-elect’s plans of increased infrastructure spending. With republicans taking control of both the House and Senate, Trump is expected to enact all his market-friendly policies seamlessly (read: Trump Triumphs: Stocks & ETFs to Rock or Shock). 

Can Dow Hit 20,000 in the Near Term?

The answer can be give by both oil and Trump.

Investors should note that though several market watchers believe that there is little-to-no correlation between oil and stocks, this belief has been changing lately as the broad-based market movement has been oil-driven to a large extent (read: If the Oil Crash Continues, Buy These 5 ETFs to Outperform).

This was especially true for Dow Jones Industrial Average. Recently, on a particular day of oil rout, the decline in Dow Jones was steeper than that of the S&P 500. Since August 2015, crude oil and the Dow Jones Industrial Average index moved almost in line. So, if the OPEC cuts an output curb deal this month, Dow may gain.

Also, manufacturing numbers point to a recovery in the U.S. Upswing in the manufacturing sector can act as a strong tailwind to Dow Jones Industrial Average’s forward growth. After all, SPDR Dow Jones Industrial Average ETF (DIA - Free Report) invests about 19.83% weight – the highest allocation – in the industrial sector (read: Global Manufacturing in Growth Zone: ETFs to Watch).

Another bullish argument — that a transition is ongoing from an interest-rate driven market into an earnings-driven one — was presented by a chief investment strategist at Baird. This can be a winning case for Dow Jones. As per an article published on Investopedia, “the consensus earnings estimates of Wall Street analysts started predicting Dow 20,000 within the upcoming year.”

Some analysts are highly optimistic about Dow stocks and their projection is a 5.3% increase to 20,024 in 18 months.

Is There Something to Worry About DOW?

Despite the bullishness surrounding Dow Jones, there are concerns as well. Investors should note that the index spent around two years to cover another 1,000 points as it reached the 18,000 mark in December 2014. Wall Street Journal notified that “this was the seventh-longest stretch of time between such round-number marks.” Moreover, it went on to explain that “the latest 1,000-point climb was the result of average gains of about 0.01% each trading day.”

What’s more concerning is that the height reached by Dow in recent times was unsusstainable. The 16000, 17000 and 18000 Dow records were all snapped in less than 160 trading sessions after the earlier 1,000-point level was first reached.

Last but not the least, hasn’t the market already priced in a Trump win? After all, key U.S. indexes logged a pretty decent ascent following the election.

Now, it all depends on how Trump delivers on his promises and oil prices shape up. Till then, investors believing in the Dow rally can invest in these ETFs mentioned below.

DIA in Focus

The fund seeks to match the performance of the Dow Jones Industrial Average Index and is thus the first choice to play the index. The fund has a Zacks ETF Rank #2 (Buy). 

iShares Dow Jones U.S. ETF (IYY - Free Report)
This ETF tracks the Dow Jones U.S. total market index and gives exposure to a wide array of large and mid-cap U.S. companies.

Guggenheim Dow Jones Industrial Average Dividend ETF (DJD - Free Report)

This ETF looks to give investors a way to target higher income producing securities in the U.S. market. This is done by tracking the Dow Jones Industrial Average Yield Weighted index (read: 5 ETFs to Watch Post IBM Solid Q3 Results).

ProShares Ultra Dow30 ETF (DDM - Free Report)

This ETF is a leveraged play that provides twice (2x or 200%) the return of the Dow Jones Industrial Average (read: An Investor's Guide to the 10 Most Popular Leveraged ETFs).

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