On Friday, the Dow Jones Industrial Average hit an all-time high of 19,999 points.
The index, which consists of just 30 of the U.S. market’s largest stocks, hit the new high amid expectations of higher corporate profits and positive economic activity.
Is the ASX200 set to follow suit in 2017?
Given the Dow’s stellar performance, Aussie investors are likely questioning if now is the ideal time to sell U.S. shares and whether the local S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) can push to record highs of its own.
Firstly, it is important to acknowledge that the composition of the Dow Jones and Australia’s ASX 200 is very different. The ASX 200 is made up of 200 stocks while the Dow has just 30. Moreover, the industry exposures are at odds. The Dow is filled with consumer staples, industrials and technology businesses while the ASX is concentrated to select financials and resources businesses.
The consequences of this are obvious. While the resources sector, led by giants BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO), came off share price lows to achieve a blistering performance in 2016 the financial sector entered a lull.
Given the ASX 200 currently trades around 5,750 and the all-time high achieved in 2007 is 6,700, clearly, both the resources and financials sectors will need to fire on all cylinders to push our market higher.
Against the backdrop of strong economic data and very low interest rates, it is little wonder why some experts are tipping the Dow to hit new highs over time. By contrast, the Australian economy appears to be a little shaky, with parts of the country still reeling from the resources fallout. Broadly speaking, this is not very good for the ASX.
However, when the Australian dollar falls to new lows local investment will become more attractive and money will return to push our market higher, in my opinion.
Staring into a crystal ball and forecasting higher returns is an easy thing to do. However, consistently making the right calls has proven to be nearly impossible.
Instead of trying to time different markets with different currencies, I think it is wise to check-in on your portfolio’s long-term strategic asset allocation. For example, over the past six months your shares may have performed really well while your bond portfolio may have fallen.
You may also need to reassess your personal situation to identify when you will need to withdraw money from the market for other uses. For example, you may be planning to buy a house in 2018.
Further, it is vital you maintain a contingency fund for emergencies, such as six months’ living expenses.
Only after you have considered all these things may it may be time to consider adding more money to your share portfolio. Pro tip: only buy your best stock ideas.
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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes -- and encourages -- your feedback on Google+, LinkedIn or you can follow him on Twitter @ASXinvest.
The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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