The Dow topped 23,000 for the first time in its 121-year history yesterday (Tuesday, October 17, 2017), 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’s rise has been driven by five key factors:
1. Economies everywhere are rebounding
Everywhere you look around the globe, economic growth is ticking higher. It’s not just the U.S. growing its GDP these days. Europe’s economy is in rebound mode. So is Japan’s. And 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 year, up slightly from its July forecast. It’s hard for stocks to get derailed if there’s scant signs of a recession on the horizon 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. And while profit growth is seen slowing in the third quarter to around 4%, nearly 85% of the 33 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,” says Perkin.
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 longer despite the U.S. 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 like Europe and Japan “remain committed to providing liquidity,” says Krosby, noting that central banks are now holding roughly $13 trillion worth of assets that 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 of on his recent tax cut proposal getting passed by Congress in coming months.
“Investors in the U.S,” Krosby says, “see the chance of tax cuts at 50/50.”
5. U.S. companies with global reach in sweet spot
Companies like Boeing and Apple and McDonald’s that sell a lot of airplanes, smart phones 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 that shoppers around the world are doing better and have more money to spend.