Stock market rides wave of optimism
Record-breaking year buoys future outlook
John Templeton, the late investing guru, once said bull markets in stocks “mature on optimism” before they eventually “die on euphoria.”
Chalk up 2017 as another year of maturity for the current bull market — on a record scale.
Defying speculation 12 months ago that the yearslong rally would be sorely tested during President Trump’s first year in office, the stock market has been riding a wave of continued optimism to repeatedly reach new highs.
Analysts give Trump some credit for the gains, mainly for pushing the tax bill passed by Congress last week, and for reducing regulations. But market trackers give most of the credit to several other factors, including global economic growth, stronger corporate profits, continued low inflation and rising consumer confidence.
“Looking at the economy and financial markets, it really doesn’t get much better than where we are right now,” Brad McMillan, chief investment officer at investment firm Commonwealth Financial Network, said in a note to clients last week.
Or, as outgoing Federal Reserve Chair Janet Yellen said this month about the economy: “There’s less to lose sleep about now than there’s been for quite some time.”
Threats remain, including political and trade tensions overseas, possible increases in interest rates and inflation, and midterm elections.
But most analysts see nothing on the horizon that would cause the optimism to substantially fade or develop into such euphoria as to cause a market bubble that bursts. Many predict that the market — as measured by the benchmark Standard & Poor’s 500 stock index — should rise more in 2018.
“I expect double-digit returns for the S&P 500 again next year (including dividends) with continued corporate earnings improvement” even though “we may be in store for some turbulence along the way,” said Chris Zaccarelli of Independent Advisor Alliance.
The Dow Jones industrial average has set record highs 70 times — the most times ever in a calendar year — as it has gained nearly 5,000 points, or 25 percent, while closing in on 25,000. It ended the week at 24,754.06.
The broader S&P 500 has set record highs 53 times, the most since 1995, as it climbed 20 percent to 2,683.34 with a week left in 2017. The index also is poised to be “higher every month this year on a total return basis, with dividends, and that’s never happened,” said Ryan Detrick, senior market strategist at the investment firm LPL Financial.
The gains mean the current bull market — now nearly 9 years old, with a gain of nearly 300 percent — is now the second-strongest bull rally since World War II, trailing only the 417 percent surge between October 1990 and March 2000.