3 Factors Driving the Dow Toward 30,000

Written by John Peterson
Posted August 7, 2017

The Dow Jones Industrial Average, the principal measure of the U.S. stock market, crossed the 22,000-point milestone last Wednesday morning — for the first time in history.

It had broken past the 20,000-point mark in January, reached the 21,000-point mark in early March, and has been climbing ever since.

It only took a mere five months to reach this latest market breakthrough.

The surprisingly persistent gains this year have come courtesy of robust profits at big companies, low interest rates, and a rare alignment of developed economies in good or improving health at the same time.

So far, those factors have been more powerful forces on stocks than world events, such as North Korean nuclear missile tests, Venezuela’s economic and political meltdowns, or legislative gridlocks in Washington.

But experts say there’s much more room for growth, predicting that the Dow will hit 24,000 by the end of the year and that 30,000 is just a few years away.

Many experts and analysts say that this long-running bull market isn’t over yet.

Here are some of the greatest driving factors that are pushing the Dow to 30,000...

The Leading Components

Dow components that have had the biggest impact on the average’s most recent growth were those of Boeing, UnitedHealth Group, McDonald’s, Apple, and 3M Company.

With the index on the rise, Fox Business breaks down the top-five performing Dow stocks since President Trump took office.

In total, the following contributed a total of 1,383 points to the Dow — and make up 62% of the index’s 2,240 points — an 11.35% rally under President Trump.

Boeing Aviation (NYSE: BA), the world’s largest plane manufacturers and one of the top U.S. military contractors has gained a total of 562.45 points since President Trump’s inauguration and is up a whopping 51.65%.

Since announcing it was withdrawing from most Obamacare exchanges last year, UnitedHealth Group (NYSE: UNH) stock has been on a steady climb, having gained 230 points and 21.17% since President Trump took office.

The world’s largest fast-food chain, McDonald’s (NYSE: MCD), has surged 62.58% since 2014 and has climbed 27.15% (adding an additional 227.16 points to the Dow) since Inauguration Day.

Apple (NASDAQ: AAPL) had extremely positive growth after stronger-than-expected first- and second-quarter results. The company recently reported its fiscal third-quarter results, and its stock has grown 24.31% and has added 199.40 points to the Dow since January.

Even though 3M Company (NYSE: MMM) missed Wall Street analysts’ expectations when it posted its second-quarter earnings, its stock has still trended upward throughout the year, having gained 13.42% and added 164.15 points to the Dow since the inauguration.

The “Trump Bump”

President Trump is very proud of the U.S. stock market, and indeed, it has done very well in the first months of his presidency.

He made this abundantly clear with his tweets last week:

We’ve picked up, substantially now, more than $4 trillion in net worth in terms of our country, our stocks, and our companies.

Since President Trump’s inauguration, the average has been hitting one historical milestone after the other: 30 record closes and a 19.4% index increase since Election Day, to be exact.

The Dow is up 11.39% this year gaining 2,251.91 points, according to Google Finance.

This stunning rise has been aptly dubbed the “Trump bump.”

But the president isn’t the only one claiming all this credit for himself. There is legitimate truth behind it, some analysts say.

The markets’ most recent run-up does indeed have something to do with President Trump’s win in November, several analysts say.

Some on Wall Street cheered the ascent of a businessman into the White House with his promises to cut taxes, invest in infrastructure, and increase military spending.

The Dow rose sharply right after the election and has risen substantially since then.

In an era of legislative gridlock, the federal government’s influence over the economy is further diminished.

But Trump isn’t acting that way.

He’s treating the Dow’s record as a kind of endorsement—a signal that the economy has improved significantly since January.

But this simply isn’t the case.

A booming Dow is great news for the wealthy investors who hold the vast majority of their investments in the stock market. But if Trump has convinced himself it’s the same thing as a surging economy under his leadership, he might be surprised when Republicans face a lot of angry voters next November.

Corporate Tax Reform

The Dow could very well reach 24,000 by the end of this year if President Trump and his administration deliver on corporate tax reforms, finance professor Jeremy Siegel of the Wharton School says.

After the Dow closed over 22,000 for the first time ever, Siegel had this to say:

I would love to see personal tax reform and lower those personal rates but what I think what is more probable and what I think Congress should attack first is corporate tax reform.

The longtime stock bull predicted on CNBC that a Dow 22,000 was “on the horizon” back in February when the index was trading around 20,504.

Siegel said the “fiasco” with the Senate Republicans’ health care bill makes Congress more determined to get something done with tax reforms.

The White House and some conservative groups are targeting Democrats in hopes of winning support for a tax overhaul. And Senate Democrats have offered to work with Republicans on a bipartisan package.

President Trump along with the Republicans in Congress have called for major tax cuts for businesses and individuals, saying that lower tax rates would drive the economy and grow jobs.

On the fundamentals, Siegel said the Dow could easily climb another thousand from strong earnings alone:

What the stock market cares about is interest rates and earnings. And both of them are doing well.

While the Fed has raised rates twice this year, with another raise likely coming in December, the cost of borrowing money remains at historic lows, which aids the economy and the stock market.

A weaker dollar is also helping to drive equities higher, Siegel said.

The dollar index against a slew of major currencies rose about 5% after the election until mid-December.

But since then, it’s fallen about 9%.

The Dow has gained more than 20% since the election. And if all goes as predicted, we may see it hit 24,000 by the end of this year.

Siegel hasn’t been wrong yet.

The Bottom Line

Donnie Herlt (your average, hardworking middle-class American) didn’t even realize that the stock market had hit a record high last Wednesday until a reporter asked him about it.

Herlt, a 40-year-old who works two jobs in Harrisburg, PA., was busy at work last Wednesday, and no one in the office seemed to care or know that the Dow hit 22,000 for the first time ever.

The reality is that most Americans are like Herlt. They have little, if anything, in the market.

Nearly half of the country has $0 invested in the market, according to the Federal Reserve and numerous surveys by groups such as Gallup and Bankrate.

This means that people have no money in pension funds, 401(k) retirement plans, IRAs, mutual funds, or ETFs.

And they certainly don’t own individual stocks such as Facebook (NASDAQ: FB) or Apple.

Most of these gains are going to the wealthy.

While money has flooded into U.S. stocks in recent months, too many people are still sitting on the sidelines, missing out on one of the longest-running bull markets in American history because they're still scarred from past financial crises.

But despite what the media tells us, rising stock prices don't always translate to higher economic growth.

Overall, Herlt thinks President Trump is doing a good job, but he’s more focused on wages than the stock market.

Wages are still rising only about 2.5% a year, which is below average and comparable to the Obama years.

The president’s real challenge is to lift jobs and wages in the “real economy,” helping normal, everyday people like you, me, and Herlt.

That’s all for now.

Until next time,

John Peterson
Pro Trader Today

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