DOW JONES FUNDAMENTALFORECAST: BULLISH
- Dow Jones[1] gained 7.8% while the Nasdaq[2] 100 fell 3.6% since February
- Fiscal stimulus, vaccine rollouts and strong economic data may continue to support stocks
- The Dow Jones index is trading at a 29.1 price-to-earnings (P/E) ratio, far above its 5-year average
Reflation trades have been the market theme over the past two months, with pandemic winners - technology, consumer staples and utilities – giving way to cyclical names such as materials, energy, industrial, financial and consumer discretionary. This trend was backed by a massive US fiscal stimulus bill, a smooth rollout of Covid-19 vaccines in the US, as well as upbeat economic data that showed signs of a robust recovery from the pandemic.
The Dow Jones Industrial Average rallied 7.8% since early February while the Nasdaq 100 index fell 3.6% (chart below). This makes perfect sense in the context of a return-to-normal earnings boost for the brick-and-mortal businesses at the expense of digital services. However, the pandemic has profoundly changed consumers’ behavior and their daily life routines. The adoption of work-from-home, Zoom meeting, online delivery of food, e-commerce, and live streaming has inevitably eroded demand for face-to-face occasions. This trend may even extend beyond the Covid era as people have familiarized themselves with digital tools and enjoyed the convenience of using them.
Dow Jones vs. Nasdaq 100 – February to March 2021
Chart created with TradingView
That said, the gap between the Dow Jones and Nasdaq 100 may not be widened too far further before an equilibrium point is reached again. More importantly, a viral resurgence and a slowdown of the vaccine campaign in Europe add to the uncertainty surrounding the global recovery and border reopening. The recent drop in crude oil prices[3] reflected
