Thank Foreigners for Dow 22000
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What is the main topic discussed in this episode?
This is Your Money Matters from The Wall Street Journal.
Welcome to Your Money Matters. I'm Jennifer Strong in New York. Our next guest says you can thank foreigners for Dow 22,000. Joining me here in the studio is The Wall Street Journal's Justin Layhart. Justin, you say Americans cheering the U.S. stock market's latest milestone should pause to thank the rest of the world for making it possible.
Yeah, that's right. If you take a look at sort of what has been fueling this rally, it's the shares of the companies that have the most exposure overseas. Things like Boeing and Apple make a huge amount of their revenues overseas. And those are the companies that have really been pushing the market further.
Why should Americans 'thank foreigners' for the Dow hitting 22,000?
And you've looked at all this data. What did you find?
Well, I combed through basically the entire S&P 500, not just the Dow, and took a look at exposures. And, you know, if I just do something simple, like take a look at the most exposed stocks, the 250 stocks of the most exposed. as opposed to the 250 at the bottom that are least exposed. If you look at the median performance this year, the return is about 16% for those highly exposed stocks and about 8% for those less exposed stocks. And I can cut it a bunch of different ways. It's just you get the same answer. Basically, those companies are the ones that are moving the market more than the more domestically focused ones.
Any exceptions?
Oh, yeah, there's plenty of plenty of exceptions. I mean, IBM is that is a huge exception. Right. It's one of the worst performers in the Dow this year. And it's a company that has lots of exposure overseas.
Which U.S. companies with large overseas exposure are driving the market rally?
So it's not like a panacea. Right. But generally speaking, the more exposed a company is, the better its stock is done this year. If you take a look at what's happened, let's look at the U.S. The U.S. is just sort of growing at the same pace for years and years and years. In the meantime, the job market is getting stronger. So wage costs, labor costs are going up. That makes it hard to generate a lot of profits growth. Contrast that to someplace like Europe, right? So Europe was really on its back for a long time. Now it's starting to do better, right? We even have the European Central Bank thinking about pulling back some of their stimulus, right? That's a big change. When an economy first starts getting going, profits go up a lot, right?
Because the sales go up way more than the costs go up. So you get this sort of multiplier effect on your profits or this magnified profit growth effect. That's what's happening in a lot of places overseas. So companies that do a lot of business overseas where they have operations, they're getting that big kind of profit push. And investors know that and they expect it. And that's one of the reasons that those companies are doing well. We also have the dollar, right? The dollar, you know, has been a headwind for overseas companies for a long time because the dollar was stronger and getting stronger and stronger versus other currencies, right? Now that's switched. Now the dollar is weaker than it was a year ago.
So if you're making money in, you know, in euros or yen or whatever, it's going to be worth more when you translate it back into dollars. So that's another good thing.
We're talking about stocks with Justin Layhart, and you're listening to Your Money Matters from The Wall Street Journal. Thanks for listening, everyone.
How much better have internationally exposed stocks performed versus domestic-focused stocks this year?
Justin, you touched on this a moment ago, but can you tell us more about the role the dollar is playing here?
Sure. So just take a look at what's happened with the dollar. The dollar has been extremely strong against other currencies, partly because the U.S. economy is doing better than lots of other economies. The Federal Reserve was tightening while other countries weren't. So it made more sense. People wanted to invest in the U.S., so the dollar goes up. Right now, that that difference between us and between the United States and other countries, that that gap is narrowing and that's benefiting other currencies against the dollar.
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Chapters
4 chapters
1
What is the main topic discussed in this episode?
0:02–0:44
2
Why should Americans 'thank foreigners' for the Dow hitting 22,000?
0:44–1:43
3
Which U.S. companies with large overseas exposure are driving the market rally?
1:43–3:35
4
How much better have internationally exposed stocks performed versus domestic-focused stocks this year?
3:35–5:14
Speakers
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