The Dow 20,000 Ceiling

After the release of the non-farm payroll data for December, futures rose on the news that the nation created 156,000 net new jobs in the month, just shy of consensus estimates for 170,000. What may have been the cause for optimism was the 0.4% increase in wages carried in the report. The unemployment rate rose a notch to 4.7%, but that was at 8:30 am ET, an hour before the market open.

The bigger event began hours later as the Dow Jones Industrial Average - with the other major indices in tow - powered higher, eventually getting to within 0.37 points of the mystical, magic mark of Dow 20,000. The stall occurred at 19,999,63, the high for the day, right around noon.

For roughly the next four hours, the Dow tantalized and amused traders and spectators alike, hovering just below 20,000, reaching to within single points on various occasions.

But it never made it, as though somebody had placed a lid on the market right at the 20,000 mark. The index struggled and failed, over and over again throughout the afternoon, to no avail. Finally, with less than ten minutes remianing in the trading day, all the stops apparently run, the ghost was given up and the Dow closed not only short of 20,000 but also shy of a new record, at 19,963.80, a few ticks short of the all-time high close made on December 20 of last year, 19,974.62.

Explanations abound as to why the Dow cannot break through this hysterical, purely-psychological number, the best of them probably involving program trading, as computer algos have been set to sell as the number is approached. If that is the case, there's more than a few sharpies on Wall Street thinking that stocks are severely overvalued, or that even if Dow 20,000 is pierced, it will not hold.

Stocks are severely overvalued, boosted over the past eight years by cheap funding courtesy of the Federal Reserve, whose pockets are being emptied, replaced by promises to pay in the form of treasury and mortgage bonds, many of them losing value.

This was a close call for sure, but the 20,000 mark still stands triumphant over a market that continues to show weakness and an unwillingness to carry through to even higher figures.

With this in mind, the question to be answered over the weekend is, will it do it on Monday? Tuesday? Ever?

From all appearances, with markets stretched to the breaking point, it's not a very good bet, no matter how close it gets.

Thus, the first trading week of the new year ends in tears, though it was a profitable one for stocks with the notable exception of the NYSE Composite, which closed down for the day. Gains were made on all major indices, but perhaps people should be paying more attention to interest rates, which, after an initial surge in yield following last month's 25 basis point hike in the federal funds rate, have fallen hard. The 10-year note yielded 2.418%, but closed Thursday at 2.368%, the lowest yield in a month. While the apparent reversal from the Fed's induced yield above 2.50% is not set in concrete, it is surely something which bears close inspection. Spreads have narrowed since the rate hike, an ominous sign of rough times ahead. If stocks falter, the stampede into bonds will be overwhelming, but possibly the move has already begun in anticipation of a stock market correction or reversal into a bear market.

However, elite traders can pat themselves on the back as they head home for the weekend. So far, January 2017 is looking good for equities, despite the obvious failure at Dow 20,000.

At the Close 1.6.16:
Dow: 19,963.80, +64.51 (0.32%)
NASDAQ: 5,521.06, +33.12 (0.60%)
S&P 500: 2,276.98, +7.98 (0.35%)
NYSE Composite: 11,237.63, -10.06 (-0.09%)

For the Week:
Dow: +201.20 (1.02%)
NASDAQ: +137.94 (2.56%)
S&P 500: +38.15 (1.70%)
NYSE Composite: +180.73 (1.63%)