Dow's March to 23000: What's Driving Stocks Higher?
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This is Your Money Matters from The Wall Street Journal. Welcome to Your Money Matters. And what's driving the markets higher? So, Akani, there's consensus on Wall Street that valuations are elevated, but the overall economy is playing a big role in the market rise.
That's right, JR. And one of the reasons why investors say the stock market has repeatedly hit records this year, even as we've seen some turbulence, as you mentioned, in Washington, North Korea, is the fact that we're seeing economic growth not just in the U.S., but also around the world. So that's really key. I mean, leading up to 2017, we had been seeing pretty steady and slow growth in the U.S. And then other areas of the world, including Europe, were lagging a bit more. But this year, actually, the OECD says that all the economies that it tracks is on course for growth. And so this would be the first time since 2007 that we're seeing a synchronized global pickup in growth. So that's really been positive, not just for stocks in the U.S., but also stocks in Europe and Asia and emerging markets this year.
There's also a feeling, I guess, that investing in stocks is just plain and simply a safe bet.
Yeah, I mean, I think that's been the case for some time now. Even when you talk to people who have reservations about stocks, people who think that stocks are looking very expensive compared to their historical valuations, they keep coming back to this question, which is where else do you find yield? And because bond yields, not just in the U.S., but across most developed economies are so low, the answer sort of inevitably just is, well, we have to keep going back to stocks.
The market has also been very pleased. There's been a constant stream of positive corporate earnings, and that seems to have played a large role also.
Yeah. And I think a lot of the folks that we talk to say that's one of the biggest reasons why stocks have been able to continue climbing, even if, you know, valuations are stretched compared to their historical values. And we haven't been able to see as much progress as some people had hoped on things like tax reform and fiscal stimulus. We are on track for another quarter of earnings growth for the third quarter. And that's building on gains from the first half of the year where we saw very strong sort of double digit growth in the first quarter and And so as long as that keeps happening, I think a lot of people say stocks will be able to continue to grind higher.
You know, there are some analysts that worry that stocks are trading at prices that are too high, even as compared to corporate earnings, as good as those earnings are. They feel as if that there is just way too much of a spread.
So one measure that is widely used on Wall Street is the PEs, so price to earnings valuations. And when you compare what stocks were trading at in terms of their PEs 10 years ago, and you look at where they're trading now, I think we're trading at about 22 times the last 12 months of earnings for the S&P 500 compared to an average, a 10-year average of about 15. So stocks do look expensive. But as I mentioned, just the fact that there aren't many other places where investors can find yield is helping sort of offset these concerns about valuations for the time being for many investors.
We're speaking with The Wall Street Journal market reporter Akani Ohtani on the Dow's March to 23,000. And you're listening to Your Money Matters from The Wall Street Journal. Thanks for listening, everybody. Connie, while we have real data to show the health of the economy and corporate earnings, the market rise the past few months has also been fueled by something that's really not so certain. That's the prospects for tax reform in Washington. That seems to be on a wish list, and no one really knows when it's going to happen and what form it's going to take.
Why has the Dow been climbing to repeated record highs?
Yeah, that's been one of the most interesting, I think, developments sort of underpinning the stock market's moves this year. You know, right after the election, a lot of people were betting that we would see pretty steep cuts in the corporate tax rate.
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