Bay Area firms help send Dow above 25,000
The Dow Jones industrial average closed above 25,000 for the first time Thursday, bolstered by strong performances from Bay Area companies including Apple Inc. and Visa Inc.
The widely followed stock index, which leaped past 20,000 a year ago, crossed 24,000 in November, and the swift march to 25,000 could signify that investors are feeling better about the economy, analysts said.
“It’s good for confidence,” said John Lonski, a chief capital markets economist for Moody’s Analytics.
The Dow Jones industrial average is a stock index made up of 30 publicly traded companies, including Apple of Cupertino, San Francisco’s Visa, Santa Clara chipmaker Intel Corp., San
Ramon’s Chevron Corp. and San Jose networking-equipment maker Cisco Systems Inc.
Shares of Apple, the world’s most valuable company, closed at $173.03 on the Nasdaq exchange Thursday, a gain of 80 cents. Analysts anticipate that Apple could be the first company to reach a valuation of $1 trillion.
The stock’s performance has been helped recently by the excitement about the iPhone X, said Michael Olson, a senior research analyst with investment banking firm Piper Jaffray. The X is Apple’s most expensive phone, with a starting price of $999. A recent survey showed that 48 percent of iPhone owners plan to upgrade to a new iPhone, up from 35 percent last year, Olson said.
Apple stock may also have benefited from investor perceptions of the tax bill, because Apple may be able to repatriate some funds kept overseas at a lower tax rate, he added. Apple had $252 billion in cash held overseas in September, according to firm Loup Ventures. Gene Munster of Loup, a longtime Apple watcher, believes Apple will bring back $214 billion.
The hope among some investors is “that Apple will then use those funds to return that cash to shareholders or make a strategic acquisition,” Olson said. Citi analysts recently said there is a 40 percent chance that Apple will buy Netflix to better compete with Amazon in streaming media.
Cisco, Visa and Intel also have billions of dollars in cash overseas.
“There is a lot of optimism about the corporate tax cuts and how much it is going to affect earnings,” said Jeremy Siegel, a professor of finance at the University of Pennsylvania’s Wharton School. “Good earnings and good momentum is continuing to drive stock prices higher.”
President Trump has said that the recently passed Republican tax law will play a role in boosting the stock market.
“Stock Market had another good day but, now that the Tax Cut Bill has passed, we have tremendous upward potential,” Trump tweeted on Wednesday night, as the Dow neared the benchmark figure. “Dow just short of 25,000, a number that few thought would be possible this soon into my administration.”
On Thursday, Trump cheered the milestone. “Big cuts in unnecessary regulations continuing,” he tweeted.
Siegel forecasts a further rise in the stock market of as much as 10 percent this year, with a correction later in 2018 due to higher interest rates and the potential for Democrats to win control of Congress in the fall election. “That certainly would slow down any Trump agenda to boost business into the future,” Siegel said.
Besides Apple, two other Bay Area companies in the Dow average — Visa and Cisco — saw their shares rise Thursday. Visa was up 41 cents to $116.08 per share, while Cisco rose 11 cents to $38.99 per share. Visa has benefited from a strong holiday shopping season and more people choosing to pay with credit cards, said Daniel Ives, chief strategy officer and head of technology research with market research firm GBH Insights.
Intel stock declined 83 cents to $44.43 per share. Ives said the stock was hurt by concerns about a security issue in its chips. The potential security exploit, exposed by researchers, could “have the potential to improperly gather sensitive data from many types of computing devices with many different vendors’ processors and operating systems,” Intel said on its website. The company said in a press release that it and its partners have been providing software and firmware updates. Intel says the issue is an industry one that is not specific to Intel, and that it does not anticipate significant financial impacts from the security vulnerability.
Intel spokeswoman Cara Walker declined to comment on the effects of the vulnerability on the company’s stock price. Despite the setback, Intel shares have risen sharply since the summer, contributing to the Dow’s rise.
Chevron stock declined 39 cents to $128.11 per share on the New York Stock Exchange.
While crossing 25,000 is another milestone for the Dow, “it doesn’t mean there’s anything magical” about that particular threshold, Lonski of Moody’s said.
“It’s just a number,” he said.