The Dow Jones smashed the landmark 20,000 barrier for the first time ever this afternoon as optimism about Trump’s pro-growth policies boosted financial markets.

Resuming a rally that began in the wake of Donald Trump’s shock US presidential election win, the index rose by as much as 0.73pc to 20,057.89.

The rally was reignited by Trump’s signing of numerous executive orders since his inauguration on Friday. Last night, he also tweeted about his intention to build a wall on the Mexican border.

The Dow Jones has surged by more than 10pc since November and it came within a whisker of touching the historic 20,000 mark on January 6. It fell in the run up to Trump’s inauguration as traders grew cautious of his protectionist policies and sought clarity on the administration’s new policies.

It has taken the index just two short months, or 42 sessions, to climb from the first close above 19,000 to 20,000. It’s worth noting the rise between 18,000 and 19,000 took some 483 trading sessions.

The biggest winners of the Trump rally include investment banks Goldman Sachs and JP Morgan, rising by 34pc and 26pc, respectively, amid hopes Trump’s fiscal stimulus package will trigger inflation and stoke a rise in interest rates.

Neil Wilson, of ETX Capital, said: "It’s psychologically huge and, after a bit of pullback ahead of the inauguration, really confirms that the ‘great rotation' from bonds to stocks is definitely upon us. Fears about protectionism are running second to optimism about inflation and growth – for now at least." 

David Fuller's view

DJIA 20,000 is a nice round number milestone and several other important US indices have also been in very good form recently.  For instance, the tech-heavy Nasdaq Composite and also the Nasdaq 100 have also pushed steadily higher since Donald Trump’s presidential election victory.  The breadth of this advance is also confirmed by the Russell 2000 Index of mid-cap shares.  DJ Transports recorded a potentially important Dow Theory buy signal with their new all-time high nearly two months ago.

Some market commentators are stunned by this strong performance.  They find it hard to believe, noting that Donald Trump is an impulsive, narcissistic, wild card.  Well, he is also a successful businessman and investors like his promise of stimulative policies, from tax cuts to deregulation and infrastructure spending. If the US economy has finally commenced a period of stronger GDP growth, and all evidence was pointing to this before the election, Trump’s policies should only boost medium-term prospects for the US economy.  That should provide a significant boost to corporate earnings on average. 

So what could go wrong?

Keep a watchful eye on US 10-Year Treasury Bond yields and the US Dollar Index, as I have mentioned on several occasions in recent months.  Bond yields were priced for the groupthink banality of ‘new normal’, an extrapolation meaning that yields could stay historically low for a lengthy additional period characterised by minimal GDP growth, disinflationary and deflationary pressures, and minimal inflation.  

If the US economy is recovering, and the evidence suggests that it is, then government bond yields are seriously out of line.  Interestingly, the US yield chart above shows an important low beneath 1.5% in mid-2012.  Just over a year later the yield had more than doubled.  However, we can see that those gains were gradually retraced, leading to a second low beneath 1.5% in mid-2016.  Thereafter, yields rose more quickly than four years earlier.  The overall pattern, in technical jargon, looks like a type-three (ranging, time and size) base formation with double bottom characteristics. 

If US 10-Year Bond Yields break decisively above 3% this year, and I believe they easily could on clear evidence of strengthening US GDP growth, we will have further confirmation that the bond bubble has burst.  Currently, bonds yields are a tailwind for the US stock market, as investors sell fixed interest holdings to buy equities.  However, above 3% that tailwind will gradually turn into a headwind for the stock market as bonds regain some of their competitiveness.   Between 4% and 5%, I believe bond yields will provide a stiff headwind for equities.  The speed with which bond yields recover will have a big influence on investor sentiment. 

Donald Trump is certainly aware of the risk that a too strong US Dollar would present for the US economy, and he has successfully jawboned the greenback lower.  My long-term view is that the Dollar is in a secular bull market supported by economic recovery, a considerable degree of energy independence, and a strong lead in technological innovation among its large corporate Autonomies.  The 100 level on the Dollar Index chart above represents initial support.  If the Fed follows through on its forecast of three rate hikes this year, it will be hard to hold the greenback down as other developed countries are very unlikely to raise rates at that pace. 

Here is a PDF of The Telegraph’s article.