DOW TOPS 23,000 AND SHOWS NO SIGN OF SLOWING
Dow 23,000 is something to cheer.”
Thorne Perkin, president of money-management firm Papamarkou Wellner Asset Management
The Dow briefly topped 23,000 for the first time in its 121-year history Tuesday but closed just shy of the milestone despite notching its 50th record close of the year and extending a bull market rally that began nearly nine years ago. This year has been full of milestones for the Dow Jones industrial average. The blue-chip stock gauge has rallied more than 3,200 points, gained more than 16% and leapfrogged 20,000, 21,000, 22,000 and 23,000 in 2017.
The strong rally has been driven, Wall Street pros say, by a financial rarity: Economies in every corner of the globe picking up at the same time.
“Dow 23,000 is something to cheer,” says Thorne Perkin, president of New York-based money-management firm Papamarkou Wellner Asset Management.
The Dow topped its newest milestone in morning trading, climbing as high as 23,002.20 before retreating. It closed up 40.48 points, or 0.18%, to 22,997.44. It took just 76 days to climb from 22,000 to 23,000, S&P Dow Jones Indices says.
The new high could lure more Main Street investors into the market, says Sameer Samana, global quantitative and technical strategist at Wells Fargo Investment Institute. Still, he says investors must be mindful stocks have been rallying a long time and have appreciated an awful lot already.
“We’ve come a long way from the crisis lows (in March 2009), and investors should make sure their allocations to stocks are not being driven by backwards-looking performance and psychological milestones,” Samana warned.
The Dow’s rise has been driven by five key factors:
1. ECONOMIES EVERYWHERE ARE REBOUNDING
It’s not just the U.S. growing its GDP these days. Europe’s economy is in rebound mode. So is Japan’s. Emerging markets are in better shape as commodity prices rebound amid a weakening U.S. dollar. Last week the International Monetary Fund upped its global GDP forecast to 3.6% this year and 3.7% next, up slightly from its July forecast. It’s hard for stocks to get derailed if there’s scant signs of a recession anywhere on Earth.
Wall Street is reacting to a “synchronized global recovery,” says Quincy Krosby, chief market strategist at Prudential Financial. “The first we have seen in a decade.”
2. U.S. COMPANIES ARE MAKING LOTS OF MONEY
Corporate America posted 10%plus profit growth in the first two quarters of the year, something CEOs haven’t been able to brag about since 2011. Profit growth is seen slowing in the third quarter to around 4.4%, and more than 80% of the 45 companies in the S&P 500 stock index that have reported results so far have topped expectations, according to earnings-tracker Thomson Reuters. Wall Street analysts expect a pickup in the final quarter of 2017 and next year.
“Some of the best numbers we’ve seen in a long time,” Perkin says.
3. CHEAP MONEY REMAINS PLENTIFUL
Markets love liquidity, a term used to describe lots of money sloshing around in global markets that can be used to buy stocks, bonds and other assets. And borrowing costs around the globe remain low — and are likely to stay that way for a while — despite the Federal Reserve signaling a third rate hike this year at its December meeting.
In fact, the world’s top central bankers, speaking this past weekend at a banking conference in Washington, said that due to tame inflation, they may need to keep their crisis-driven stimulus policies in place longer.
Global central banks in places such as Europe and Japan “remain committed to providing liquidity,” says Krosby, noting that central banks are now holding roughly $13 trillion worth of assets they purchased as a way to get cash circulating in markets around the world.
4. TAX CUT HOPES NOT DEAD
President Trump has had few legislative triumphs since taking office in January, but investors are placing better odds on his recent tax cut proposal getting passed by Congress in coming months. A tax cut for corporations will mean more of their revenue will end up as profit.
5. U.S. COMPANIES WITH GLOBAL REACH IN SWEET SPOT
Companies such as Boeing, Apple and McDonald’s that sell a lot of airplanes, smartphones and fast food abroad are benefiting from a profitable one-two punch of a weaker dollar and stronger foreign economies.
The weak dollar makes U.S. products cheaper when purchased with appreciating foreign currencies, and sales get an added boost from the fact shoppers around the world are doing better and have more money to spend.