Well, the Dow Jones Industrial Average finally joined other major indices that closed at an all-time high, and shattered that 20,000 mark- what does it all mean?
Although experts say it’s just an arbitrary number, the market shattered the 20,000 brick wall that goes beyond the stock market. For many, it marks the official turning point where America is looking for bigger and brighter things to come.
The Inflection Point
Andy Grove escaped from Communist-controlled Hungary at the age of 20 years old, got his education in the United States and then became the third employee and CEO of a small tech company called Intel. In 1997, he was named Time Magazine “Man of the Year.”
His business smarts have resulted in many books and theories, including the notion of the ‘Inflection Point Curve.’ The Inflection Point Curve is the point where a business is on the cusp of a major move that either takes it to new highs or new lows.
I could try to explain the scientific formulas that explain the inflection point theory, or I could mention when Biggie Smalls said “Damn right I like the life I live, cause I went from negative to positive.”
The Inflection Signs
If you believe the stock market is a harbinger of things to come for society, then the future looks bright. The question is whether we are really seeing this really beyond the big splash for Dow 20,000.
The answer is yes.
Sure, the company stands to benefit mightily from massive infrastructure spending in America and China, but there are already signs of an inflection point that could see its business reach new heights.
The best example is Caterpillar (CAT). Reported retail sales were negative for the month of December that sent its shares to a two-year high.
Regional sales were down 12%; December 2015 saw sales decline 17%.
|
Caterpillar Regional Sales |
Dec 2016 |
Dec 2015 |
|
Asia Pacific |
+19% |
+11% |
|
EMEA |
-21% |
-25% |
|
Latin America |
-34% |
-32% |
|
North America |
-14% |
-19% |
|
Worldwide |
-12% |
-17% |
Oldest Economic Barometer
The same kind of story is playing out with other industrial areas like the rails. Norfolk Southern Railway (NSC) rallied to an all-time high as several business segments improved dramatically.
Old-school investors know that transportation names are the ultimate proxy for America. The Dow Jones Transportation Index (DJT) has made a big move over the past year, but the inflection point was clearly the election of Donald Trump- the index is up 13% since.
Now, it’s on the cusp of making new all-time highs. That initial post-election leg higher was enthusiasm; the current move is the manifestation of that enthusiasm.
Investors need to step up to the plate understanding that each day won’t be as exciting as Wednesday, but the inflection has begun and it probably gets a lot better from here.