Dow Closes Up for Eight Straight Sessions. Time to Buy Now?

This is what “winning” looks like, right? The Dow Jones Industrial Average (DJIA), which includes 30 of the largest U.S. companies, notched eight consecutive winning sessions. It’s unusual and, perhaps, inexplicable.

Just bear in mind that, as the old saying goes, the financial market is a voting machine in the short term and a weighing machine in the long term. Sentiment, with the helping hand of central-bank liquidity infusions, drives immediate-term mega-cap stock prices.

So, any search for a justification could just lead you to a dead end. Certainly, the economy doesn’t justify a Dow melt-up. April’s U.S. jobs data indicated the highest unemployment rate since January of 2022 (3.9%), as well as the lowest year-over-year growth in jobs since March of 2021 (1.8%).

Also, let’s not confuse the sentiment on Wall Street with the sentiment on Main Street. The most recent University of Michigan survey released indicated a 13% decline in overall consumer sentiment during the month of May. The print came in at 67.4, which is the lowest consumer sentiment level in six months and substantially below the economists’ forecast of 76.2.

Courtesy: BarChart

It’s an odd phenomenon when American consumers are skittish but there’s no fear in the financial markets whatsoever. While the Dow flirts with all-time highs, the VIX fear gauge recently closed at its lowest level since January 23.

Granted, some investors will believe it’s bullish when a stock index goes up eight days in a row. There’s something to be said for the momentum or “momo” trade, since the latecomers, price chasers, and bandwagon jumpers will sometimes sustain a rally even after it’s already stretched.

But then, one has to wonder whether the folks who buy mega-cap stocks at the top are really the “smart money.” If the in-the-know investors are corporate insiders, then perhaps the “smart money” is selling while the amateurs are buying.

I’m not just assuming that insiders are dumping their mega-cap shares. Data from September 1, 2023 to May 7, 2024 shows that high-level executives from NVIDIA, Alphabet, Amazon, Microsoft, Apple, and Tesla have sold millions of dollars’ worth of their companies’ stock.

One might argue that they’re just taking profits after massive melt-ups in these stocks, and it’s not necessarily a sign that these companies are in trouble. However, either way, investors should watch what these executive do, not what they say in their press releases and conference calls.

Courtesy: @Gloeschi

If you really feel the need to make sense of the Dow’s relentless run-up, just keep in mind that the market is extremely forward-looking. While there’s nothing from the Federal Reserve stating outright that interest-rate cuts are coming, the market knows that rate cuts are inevitable.

As you can see in the chart shown above, the U.S. government is paying out more than $1 trillion per year in interest payments on the federal debt. In order to reduce those interest payments, the interest rate needs to be lowered, and of course the Fed knows this.

Thus, the Fed has the dual mandate of tamping down inflation but also helping the government service its $34 trillion debt load. All of this is happening during an election year, mind you.

Federal Reserve Governor Michelle Bowman recently stated that she believes interest rates need to stay where they are “for a bit longer.” This type of chatter only encourages price chasers to continue chasing large-cap stock prices. You can join them if you’d like, but personally, I’m choosing value and prudence over “momo” and speculation.