Dow Jones climbs over 22000 for first time – Washington Post

The  Dow Jones industrial average on Wednesday roared above 22,000 for the first time in history, propelled for the past four months by aerospace giant Boeing and a pop this week from Apple.

One of the longest bull markets in history continues, courtesy of robust profits, low interest rates and rare global alignment of developed economies all in good health at the same time. Those gains come while Europe and the U.S. economies continue to grow at 2 percent, which many believe is too low to lift living standards.

The cheap U.S. dollar  is helping American companies sell products more cheaply overseas.

“It’s starting to show up in company earnings,” said Craig Birk, executive vice president of portfolio management at Personal Capital, a California investment firm with $4.9 billion under management. “It’s also provided some confidence that the strength we saw in earnings in Q2 can continue for the rest of the year. The dollar weakness has been pretty universal around the world. July was the fifth consecutive month of dollar declines.”

Birk said part of the reason for the dollar’s decline is that it “has been on a huge run and probably had gotten ahead of itself. It’s returning to the mean.”

More than 70 percent of the Standard & Poor’s 500-stock companies reporting this quarter have bettered last year’s number by 10 percent or more and have beaten Wall Street predictions.

“It’s really simple,” said Jamie Cox, managing partner at Harris Financial Group in Richmond. “Earnings drive stocks. The path of earnings is upward right now.”

The market has continued its upward surge unperturbed by the chaotic start to President Trump’s first term in Washington and world events like North Korean nuclear missile tests, Venezuela’s economic and political meltdown and a Republican Congress failing to repeal Obamacare — one of Trump’s key campaign promises.

Trump, speaking at a White House event on immigration, touted the market’s success. “We’ve picked up over $4 trillion of net worth in our country, our stocks, our companies,” he said. “The stock market hit the highest level that it has ever been and the country is doing very well.”

Michael Farr, a Washington investment manager said the Dow’s 22,000 mark “ should be celebrated. It heralds the success of the American economy.”

“But,” he continued, “the individual investor should remember that the rule is buy low and sell high. This is not low. Market’s don’t say high forever. This will come down.”

The Dow index, comprised of  30 major U.S. companies, has been on a tear the past five months, rising from 21,000. Boeing, hamburger chain McDonald’s (with its big all-day breakfast push) and UnitedHealth Group are responsible for the vast majority of the Dow’s gain, contributing 45 percent, 20 percent and 20 percent respectively.

Boeing, one of the nation’s largest defense contractors,  is the most expensive stock in the Dow index at a share price of $239.50 as of Wednesday. Boeing shareholders have reaped a reward following the Trump election, with the company second to Goldman Sachs in its contribution to the Dow’s rise in the four months following the election. Part of the Boeing boost may be attributed to a Republican Congress and president. The GOP is generally seen as more friendly to defense industries because of its pro-military posture.

Technology has done its part as well. The S&P 500 technology sector has outpaced other industries with its stocks improving 23 percent in 2017. The technology surge comes largely from Apple, (whose owner, Jeffrey P. Bezos owns The Washington Post), Facebook, Google-parent Alphabet and Microsoft.

Retail and institutional investors alike have piled into equities as the Dow reached a succession of 30 record highs so far this year.

Mutual fund giant Vanguard, with $4.4 trillion under management, said Wednesday that shareholders have directed $135 billion to equity funds and exchange-traded funds so far this year, dwarfing the $87 billion directed to bond products.

Fran Kinniry of Vanguard’s investment strategy group, said “if you look cash flows there is a good-news, bad-news story. The good news is all of the net flow is going into low-cost funds. That’s good because high costs are a drag on future performance.

“The bad news is when you look at the flows between stocks and bonds. Here the cash flows are much more toward the equity stock market than the bond market,” he said. “Why that is troubling to us is that we are in the second-longest and largest bull market of all time. If and when we have a bear market, and we are not saying it’s around the corner, the losses incurred by an investor who doesn’t rebalance could be much higher than an investor who does rebalance.”

Some analysts said the era of passive index funds, which Vanguard has espoused, has had a positive effect on the market. Index funds simply track market bellwhethers like the Dow and S&P 500 without trying to pick winners and losers.

“People are more passively invested than they have been in a while,” Cox said. “It’s a good thing. With a more passive bent to the investment portfolio of many normal investors, it lends itself to a much longer-term thinking.”

Even the  Chicago Board Options Exchange Volatility Index, known as the VIX, which shows the market’s expectation of 30-day volatility, is near all-time lows.

“The market has pretty much shrugged off Washington’s dysfunction,” said Chris Gaffney, president of World Markets at EverBank. “The larger story is about the return of the consumers both here in the states and in the emerging markets of China and India. Those markets are helping offset some of the slower growth in Japan and the U.S.”

Ed Yardeni of Yardeni Research called the push a “summertime lullaby” in a recent blog post.

“For stock investors, the living has been relatively easy since March 2009, when this great bull market started,” he said. “It would have been far easier if we all fell asleep since then and just woke up occasionally to make sure we were still getting rich.

“Now it seems that we are all getting lulled to sleep by the monotonous advance of stock prices,” Yardeni wrote. “ They just keep heading to new record highs with less and less volatility.”

Dow Jones climbs over 22000 for first time – Washington Post