FORGET ALL THAT BAD NEWS: YOUR 401(K) IS DOING GREAT
‘Resilient’ markets pick up steam in Q3 — and may get better
Can the good times roll on for U.S. stock investors after eight straight quarters of gains for the blue-chip Dow?
Americans that own stocks in a 401(k) or other accounts should see bigger account balances when they review their quarterly statements after the U.S. market posted solid third-quarter gains as upbeat news on the global economy overshadowed a steady stream of negative news ranging from catastrophic hurricanes to cyber hacks and war chatter from North Korea.
And the gains could very well continue in the final three months of the year, thanks to a “resilient market fueled by rising expectations” for economic growth and corporate earnings, says Kate Warne, investment strategist at Edward Jones, a financial services firm based in Des Peres, Mo.
Stocks could also get an added boost if the market begins to price in higher odds of President Trump getting his recently announced tax-cut plan passed early in 2018. Lower taxes will boost the profits of American companies and could spur more business spending.
“There’s renewed hope on the tax front,” says Nick Sargen, chief economist and senior investment adviser for Fort Washington Investment Advisors in Cincinnati.
The Standard & Poor’s 500, a broad stock index made up of some of the nation’s biggest publicly traded companies, posted solid gains, rising 4% in the third quarter to a fresh record and extending its year-to-date return to 12.5%.
The 30-stock Dow Jones industrial average fared even better, rallying 1,055 points, or 4.9% in the July-thru-September quarter. It is up 13.4% for the year. The Dow hasn’t suffered a losing quarter since the third quarter of 2015.
Tech investors also were rewarded, as the Nasdaq composite continued its market leadership role with a 5.8% quarterly rise that left it up 20.7% in 2017 and at an all-time high. The small-cap Russell 2000, which had been lagging, picked up steam late in September to finish the quarter up 5.3% and in record territory.
Nothing seems to be able to slow down the nearly 9-year-old bull market, not Hurricanes Harvey or Irma, not threats of war from North Korea’s leader Kim Jong Un, not high-profile cyber heists at credit bureau Equifax and the Securities and Exchange Commission.
“Although the hurricanes and political tensions dominated the headlines in the third quarter, they didn’t seem to diminish investor, consumer and CEO optimism,” says Warne.
The U.S. stock market posted paper gains of $1.1 trillion in the third quarter, according to Wilshire Associates.
So what’s keeping what Jim Paulsen, chief investment strategist at The Leuthold Group, a Minneapolis-based investment firm, calls “The Teflon Market” going? “The economy,” he says.
The memory of slow 1.4% growth in the first three months of the year are fading after a 3.1% rebound in the second quarter and an economy on track for 2.3% growth in the just-ended quarter, according to Barclays, despite economic disruptions caused by violent weather events.
The resilience of the domestic economy, coupled with growth this year in most countries around the globe, has provided a lift to U.S. corporate profits, which are growing at their fastest pace in six years. Also underpinning stocks has been continued low inflation, which has kept the Federal Reserve from hiking interest rates too aggressively from historic, financial crisis-era lows.
“The bottom line is investors see the economy on solid footing,” says Sargen.