The Dow Jones has been enjoying a phenomenal run this year, but gains in digital currencies have been even better. So the obvious question that arises is: which will stand first? The Dow 30,000 or bitcoin at $30,000?
Of late, Bitcoin and other digital currencies have been getting toasted in recent trading sessions due to increased regulatory scrutiny in China. J.P. Morgan Chase CEO Jamie Dimon has also criticized bitcoin as one of the most bubblicious segments of finance. On the other hand, the Dow continues its upward journey driven by steady economic recovery and expectations of tax cuts. The Dow has also shown remarkable longevity and has frequently outdone the broader markets since inception.
Such developments make us believe that the blue-chip index is better positioned than the cryptocurrency. The Dow’s 30 components have made it more diversified than the bitcoin, which could protect it from any future downside. Thus, place your bets on sound blue-chip stocks, rather than being super bullish about bitcoin.
Dow or Bitcoin: Who Will Make It to 30,000?
The Dow ended at a record high for the third straight session on Sep 14, marking its 38th record finish this year. The blue-chip index is currently at around the 22,000 mark, meaning it would need to rise just about 35% to hit the 30,000 milestone.
Bitcoin, on the other hand, is down about 14% at $3,349, much lower than $5,000 in early September. This represented a loss of nearly $27 billion of market value in the world’s number one cryptocurrency, as per digital site Coinmarketcap.com. This makes things harder for bitcoin as now it will need to gain a whopping 795% to reach the coveted $30,000 mark. But, that doesn’t seem to be a very daunting task for bitcoin since it has risen 250% so far this year, with a market cap of $59.3 billion.
Cryptocurrency is in a Bubble Ready to Burst
China has appeared to set the stage for a further pullback in bitcoin, making it difficult for the cryptocurrency to move north. BTCC, a bitcoin exchange, said that China-based exchanges will end operations on Sep 30. Chinese regulators are planning to shutdown bitcoin exchanges to crackdown on illegal uses of digital currency. They are also keeping an eye on fundraising linked to digital-currency ventures and have declared initial coin offerings illegal. This is a major setback for the cryptocurrency as China is a major hub for bitcoin activity that represents almost 20% of bitcoin mining and trade, said Charles Hayter, co-founder of CryptoCompare.
The selloff, in part, gained momentum after Jamie Dimon called the bitcoin a fraud and compared it with tulip bulb mania, which will “eventually blow up.” Speaking at CNBC’s Delivering Alpha conference, Dimon said that “bitcoin is not a real thing and it’s solely speculative and that there’s no need for it in the U.S.”
Upbeat Economic Data, Trump’s Tax Policy to Boost Dow
Comparatively, the Dow is expected to gain traction this year, banking encouraging economic data. The U.S. GDP expanded 3% in the second quarter, the fastest in more than two years. An uptick in consumer outlays and business investment gave the economy a boost. Increased spending on goods and services drove consumer expenditure by 3.3% in the said quarter. Consumer spending – the biggest driver of the economy – picked up on higher income for consumers and low inflation.
The Dow is also expected to be driven byexpectations of tax cuts. A key component of such a tax reform is to bring overseas profits to the United States, without paying the 35% corporate tax rate. Per Trump’s proposal, companies need to pay only 10% on the money they bring back, often known as “repatriation.” Last week, Trump said in North Dakota, “We must bring back trillions of dollars in wealth that’s parked overseas.” He wants to do so to spur jobs and growth.
Dow Outdid the Broader Stock Market Historically
Since its inception in 1896, the Dow has achieved a remarkable feat. The blue-chip gauge has outpaced the broader market, as measured by the S&P 500 index. The index during the most tumultuous periods for equities ever – Oct 9, 2007 to Mar 9, 2008 – fell 53.8%, narrower than the S&P 500’s loss of 56.8%.
At the same time, the Dow also outperformed during better times for the stock market. Both the Dow and the S&P 500 have produced a slew of record highs since Trump has been elected as the President. However, the Dow is up 9.5% since then, more than the 6.6% gain for the S&P 500.
How to Invest in Blue-Chip Stocks?
With the Dow poised to score over bitcoin, investing in some solid blue-chip stocks seems prudent at the moment. We have, thus, selected four such stocks that sport a Zacks Rank #1 (Strong Buy) or 2 (Buy). Such stocks also boost a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
Boeing Co (BA - Free Report) is an aerospace company. The company's segments include Commercial Airplanes; Defense, Space & Security (BDS), such as Boeing Military Aircraft (BMA), Network & Space Systems (N&SS) and Global Services & Support (GS&S), and Boeing Capital (BCC). Boeing has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for current-year earnings advanced 5.9% over the last 60 days. The company’s expected growth rate for the next quarter is 14.9%.
Caterpillar Inc. (CAT - Free Report) is a manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. Caterpillar has a Zacks Rank #1 and a VGM Score of B. The Zacks Consensus Estimate for current-year earnings rose 21.7% over the last 60 days. The company’s expected growth rate for the current and the next quarters are 40.5% and nearly 47%, respectively.
Home Depot Inc (HD - Free Report) is a home improvement retailer. The company sells an assortment of building materials, home improvement products, and lawn and garden products, and provides various services. Home Depot has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for current-year earnings increased 1.1% over the last 60 days. The company’s expected growth rate for the current and the next quarters are 12.8% and 10.4%, respectively. You can see the complete list of today’s Zacks #1 Rank stocks here.
Intel Corporation (INTC - Free Report) is engaged in the designing and manufacturing of products and technologies, such as the cloud. The company has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for current-year earnings improved 4.9% over the last 60 days. The company’s expected growth rate for the current and the next quarters are 0.1% and 4.3%, respectively.
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