Why Stocks Continue To Set Records

Posted on August 4, 2017 at 2:33 PM PST by

The Dow Jones Industrial Average just busted through 22,000 points, up from just 7,063 in 2009. Despite seeming bad news, stock investor see only positives.

Sure, tensions are high with North Korea and Russia. Congress seems to be unable to agree on anything of substance. Yet the bull market in stocks roars on.

It’s too easy to credit politicians for the optimism, though certainly they always are happy to take credit where and when they can. The larger picture, however, is clear.

Unemployment remains low. Inflation is contained. But the big change has been growth abroad. Foreign sales make up a big portion of earnings for U.S. stocks, and a lot of foreign economies have seen a turnaround over the past year.


If you were directly invested in foreign stocks via a mutual fund, you would have seen this change more obviously. The MSCI EAFE Index, which follows 21 developed markets, is up about 18% over the past 12 months.

The MSCI Emerging Markets Index rose by 22.5% over the same period. If you think about what’s in the Dow Jones Industrial Average, you can easily imagine the impact of rising foreign earnings.

In the Dow 30 you find, for instance, big oil companies such as Chevron and ExxonMobil. Sure, oil prices are relatively low, but growing demand abroad makes a difference to these companies.

Same story for General Electric, Coca-Cola, IBM, Caterpillar and other big names in the Dow.

This wasn’t the case a few years back. Investors seemed to get cold feet and left foreign developed and emerging market stocks for the apparent safety of U.S. stocks. It was the time of Brexit and Brazilian political street protests.

Over time, stock valuations fell, making foreign share ownership more attractive. That set off a flurry of international reinvestment that coincided with the realization that Brexit would take years to enact, and that Brazil would continue to export, whoever was president.

Bull market

U.S. shares rose along with foreign companies. The difference is that the return to global investing has coincided with relative calm at home and, truth be told, some betting by Wall Street that the current administration would be good for business growth.

Whatever comes out of Washington, unemployment is low, job growth steady and inflation is low — as they have been for years now — and there’s no sign of imminent change.

Couple that with strong earnings and you get a continuing bull market. Naturally, even if the stock market closes a single point higher each day, that’s a new record.

Passing 22,000 on the Dow is news, for sure. But it was news at 21,000 and at 20,000 and so on, all the way back to the bottom in 2009. The trick is to remain invested, contribute to your retirement funds and make sure your balance of stocks and bonds is in line with your personal investment goals.

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