Dow Tops 25,000: Inflation And Tightening On The Horizon

The 2017 boom in U.S. equities has continued through the first three trading sessions of 2018. A bit earlier on, the Dow Jones Industrial Average (DJIA) eclipsed 25,000 for the first time in its storied history. The cross-section of stocks included in the DJIA is already up over 1% on the new year.

The heavy participation after the New Year’s holiday looks to be a product of institutions going long yet again in the U.S. market. However, it is puzzling to see such strength being exhibited by commodities:

• February gold futures are trading near 1320.00, poised to challenge 2017’s high of 1365.8.
• February WTI crude oil futures are up again today amid heavy volumes. Price is in the $62.00 per barrel range, levels not seen for three years.

With such growth in commodity and equities pricing, we are seeing the kickoff of an inflationary cycle. The long underperforming U.S. inflation is very likely to hit the FED’s coveted 2.0% sooner rather than later.

Economic Metrics

This morning’s U.S. economic releases were positive and are being lauded as the reasons behind the DJIA’s 125 bull run on the New York cash open:

Event                                                        Projected          Actual

ADP Employment Change (Dec.)              190K                250K

Continuing Jobless Claims (Dec. 22)         1.925M            1.914M

Markit PMI Composite (Dec.)                      53.7                 54.1

It is no surprise that the U.S. employment situation is improving. Strong economic numbers are becoming the norm in the wake of increased consumer spending and optimism. We will see how long the positive sentiment lasts, but early 2018 looks to be another one for the bulls.