Dow Jones and S&P 500 Defy Analyst Expectations


By Janine Cox | Published 04 November 2019


Last week the Dow Jones Industrial Average rose 1.44 percent and, in doing so, signalled that it is bullish, as it nearly broke through its previous all-time high set back in July.

Interestingly most of the gain last week occurred on Friday with the Energy sector up 2.5 percent, Industrials up 2.2 percent, Materials up 1.45 percent and Financials up 1.4 percent.

This calendar year, the Dow Jones Index has risen around 18 percent while the S&P500 is up by around 22 percent. When looking at the sectors, it is common for the underperformers in the current year to outperform in the following year, which is the case right now.

In the past 12 months the Energy, Healthcare, Financials and Consumer Staples Sectors all lagged the rest of the market achieving either a negative or single digit returns while all of the other sectors have achieved double digit growth since the end of October 2018.

While there are some great opportunities in the sectors that have performed strongly over the past year, such as Information Technology, Real Estate and Utilities, there are also some good value stocks in the under performing sectors for the astute investor. If you are willing to take the time to find them, you will be well rewarded.

As we discussed last week, there has been talk of a death cross appearing on the Dow Jones Index, and the news in the past 12 months still has investors concerned about a market crash. However, what is unfolding right now paints a different picture.

In fact, historically, research has indicated that what investors fear the most has less than a 3 percent chance of occurring. Investors are also fearful of losing their entire investment, which statistically speaking has a zero chance of occurring if you own a diversified portfolio of direct stocks.

Despite the market rising, what was interesting last week was the number of short sellers in the market right now with the most highly shorted stocks shown below (from the NASDAQ website):

  • AMD Advanced Micro Devices, Inc.
  • Microsoft Corporation (MSFT)
  • Cisco Systems, Inc. (CSCO)
  • Apple Inc. (AAPL)
  • Zynga Inc. (ZNGA)
  • Facebook, Inc. (FB)
  • Amazon.com, Inc. (AMZN)
  • Tesla, Inc. (TSLA)
  • NVIDIA Corporation (NVDA)
  • JD.com, Inc. (JD)

The amount of short seller interest in the market gives investors a way to compare market sentiment between different listed companies.

Tesla was by the most interesting given that many analysts were surprised by its solid earnings report the week prior with many analysts expecting the company to deliver another loss or possible downgrade but instead it announced a profit for the quarter. This caused short sellers to quickly cover their position sending he price of the stock up as much 28 per cent for the week ending 25 October.

Following this stellar rise, it was no surprise to see Tesla settle last week and trade down slightly although it will be interesting to see if the short sellers return. Right now I don’t believe this is likely and if Tesla can repeat its performance next quarter, this could be the one to watch in the next year or so. 


Back to Market Report Videos