Breakfast is the most important meal of the day and the Dow Jones Industrial Average ordered an egg white omelette, two pieces of turkey bacon, and a record high opening on October 3, 2018. U.S. stocks, with the Dow, rose through the roof as financial stocks scored from a rebound in European markets.
The Dow Jones Industrial Average (DJI) rose 0.22% at the open on 10/3/2018 to $26,833.47,
The S&P 500 Index (SPX) opened higher on 10/3/2018 by 0.28%, at $2,931.69, and the
Nasdaq Composite (IXIC) gained 0.44%, to $8,034.65 following the 10/3/2018 ringing of the opening bell.
Analysts agree that these strong gains are due to the recent news that Canada, Mexico, and the US are making trade deals and swapping ghost stories like old pals. The new trade deal, the United States-Mexico-Canada Agreement, or “USMCA,” is a trilateral trade bloc agreement meant to replace NAFTA nearly 25 years after its enactment. President Donald Trump has gone on record with his devout support of the deal, saying that it is the “most advanced trade deal in the world.” Well, this trade deal better have gull-wing doors and get me back to 1955 to make sure my parents kiss. Kidding aside, clearly the market is reacting positively from this new deal, given that it will grant more market access to US dairy farmers, cap automobile exports to the States from Canada, and several other beneficial provisions.
Jennifer Ellison, principal at BOS Invest, suggests that the market has reacted as such because “investors are less worried about a trade war” and this new agreement, like Pepto after Chipotle, provides the US with a “sigh of relief”.
In regard to our friends across the pond in Europe, the Stoxx Europe 600 index rebounded from its drop on Tuesday due to a report that Italy pledged to cut its deficit to 2 percent by 2021. Luigi Di Maio, head of the Five Star Movement in Italy (a populist, anti-establishment, Eurosceptic political party), publicly accused EU officials of deliberating making negative comments about the deficit in hopes of upsetting capital markets. Di Maio went on to say that he believes “Some European institutions are playing…at creating terrorism on the markets.”
It’s Di Maio, no, it’s DiGiorno.
Many Italian economists are suggesting that the country’s issues could all fade away if they had their own currency.
This is America, Some Stocks Be Slippin’ Up
Back in the land of cheeseburgers and Chevy Suburbans, not all market players are knocking it out of the ballpark.
Although the Dow Jones Industrial Average (DJI) is breaking records, with the S&P 500 (SPX) Index following suit, the water isn’t so clear for significant parts of the equities market, in particular, the iShares Russell 2000 Index (IWM).
The Russell 2000 Index (IWM), a small-cap ETF, is losing steam, and fast. Most small-cap stocks, which make up the Russell 2000’s (IWM) holdings, are domestic companies, and most of their income comes from U.S. industries. Unlike the large blue-chip companies that call the Dow & S&P 500 home, companies in the Russell 2000 are less impacted by international trade, therefore making them a safer investment.
Analysts are concerned that the Russell 2000, down 4.87% since August, will take other notable indices, with it, down with them. As recent as yesterday, the Russell 2000 (IWM) dropped 16.95 points to $1,656.04.
Though this seems disconcerting for the small company index, some analysts are arguing that investors should view this merely a “short-term pullback,” and are recommending that one could buy-the-dip.
The buy-the-dip strategy is predicated on the notion that you, as an investor, can play the long game. This is not for the faint of heart. In an interview conducted by Forbes, CFP Jason Preti, a financial advisor at Unleashed Financial gave his take:
“Investors who are in the active accumulation phase of investing, should welcome the volatility and use most any down-tick as an opportunity to buy equities at a discount”
The fate of market indices is not written in stone. We must look forward, always forward, as we pay close attention and keep our fiscal guard up. The next few trading days will serve as a crucial indicator of how American businesses will fair in the coming months. According to Bloomberg, the monthly ADP Employment report will be released soon, which should show that domestic companies hired more employees in September than in August. Hopefully, this information will remedy the ailment currently plaguing the Russell 2000. Whether you plan on buying the dip of your choice or playing it safe, may the force be with you, my friends.