2017 year of record-growing stock market: What you need to know

Updated Dec 08, 2017
(Photo by Spencer Platt/Getty Images)

When the stock market closing bell sounded on the afternoon of Nov. 8, 2016, the Dow Jones Industrial Average closed at 18,332.74, up 73.14 — a good day for investors.

Hours later, Donald Trump was elected president of the United States and further sparked a bull run in the stock market that has not stopped.

On Thursday, the Dow Jones hovered above 24,200 — growth of nearly 6,000 points since the election — a remarkable year for investors that includes 80 new record closing highs.

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The so called “Trump bump” has increased the bottom lines for companies and padded investment savings for the average worker. For perspective, consider the market rose 5,334 points in the previous six years.

By nearly any benchmark reckoning, this year has been special so far, said Rob Russell, president of Russell Total Wealth Management, a firm that will soon move from Fairborn to Oakwood’s Sugar Camp office park.

“I don’t know how anybody could really refute that,” Russell said. “We’ve been somewhat in a secular bull market since ‘09 and continue to march forward. But this year does feel a bit different.”

This good news benefits Main Street, not just Wall Street. Average 401(k) and individual retirement account balances hit record levels in the third quarter this year, rising 10 percent over 2016, according to Fidelity Investments.

Trump bump

Some investors question if the rising markets can all be attributed to Trump’s election. The current bull market investors have gratefully embraced actually extends well back to the market’s Great Recession March 2009 low point — more than 104 months in total.

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Trump owns about 12 months of that ongoing surge in the market, some say.

But others say this year is notable, with gross domestic product estimates solidly higher and unemployment remaining stubbornly low. Businesses seem to anticipate good things ahead, including the tax bill making its way through Congress.

“The market is moving up now on some pretty solid fundamentals,” said William Wood, a certified financial planner with Adams Wealth Management Group in Centerville.

Wood said last November, the market reacted in anticipation of a “pro-business personality in the White House.”

“The market, without any evidence, took off,” he said.

‘Irrational exuberance’

But Wood — also a lecturer and program director at the Raj Soin College of Business at Wright State University — says today’s economy is sound, regardless of political happenings.

“That irrational exuberance, if you will, spilled over in the first quarter of the year,” he said. “The market was looking for some reason to substantiate that.”

The market seems to have found that reason, he said.

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GDP growth, even on revisions, is trending upward. On Nov. 29, GDP was revised to 3.3 percent, the fastest growth since the third quarter of 2014. Business-equipment spending rose at a 10.4 percent pace, revised from 8.6 percent, another three-year high.

The GDP measure is meaningful, said Jeffrey Haymond, a professor of economics and business school dean at Cedarville University.

Two percent growth is hardly a recession, but it’s not necessarily ideal, either. But Haymond said that at three percent GDP growth — if such a pace can be sustained — the nation should start to achieve “real income growth.”

“The wage pressures will start to build,” Haymond said.

During the previous administration, “apologists” for Obama sometimes said the nation shouldn’t expect better than two percent GDP growth, he said.

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“We were told, ‘You can’t do better than that,’” Haymond said. “Well, we’ll see.”

Budget woes, a feared government shutdown and North Korea could slow down the market the rest of the year, but Wood thinks the market has already “priced” all of those fears into current Dow Jones elevations.

“Going into Christmas, earnings are good and consumer spending is good,” Wood said.

Daniel Kapusta, director of the Davis Center for Portfolio Management at the University of Dayton, agreed that the market is reacting to “some solid growth.”

It’s key to pay attention to interest rates, he said. Even as rates slowly rise, the 10-year Treasury yield — a benchmark measure of the value of U.S. Treasury bonds — remains very low nonetheless.

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So with interest rates and corporate earnings in good places, “Investors continue to feel they have no choice or no alternatives but to buy stocks,” Kapusta said.

Take away politics for the moment, Kapusta suggested. What’s left is mostly good news for investors.

“The current environment is very positive for stock prices,” he said.

‘They eventually come crashing down’

Wealth manager Russell said voters “hired change in Washington. And whether you like it or not, we got change on our hands.”

“This whole market rally over the past year is all built on humongous expectations,” Russell said. “And I think that’s the key going forward. Will those expectations be delivered on?”

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House and Senate tax reform appears to have momentum and is already priced into the market. As a result, businesses may invest anew in research and development, Russell said.

But market “corrections” and gyrations happen, he cautioned. He cited a recent Gallup survey that found about half of investors expect some kind of market pull-back before year’s end.

“Do we deserve a 20-percent-plus bull market?” Russell said. “Not historically. It’s all future expectation. And that’s the thing — it has to be delivered on, sooner or later.”

Cedarville’s Haymond sees some wild cards that could derail the market. Investors tend to like unimpeded trade — and Trump’s “attacks” on trade are a potential negative, he said.

Trees don’t grow to heaven, and neither do markets, Russell said.

“They eventually come crashing down.”