This strong Dow Jones rise does not mean there is no risk in the US stock market.
Dow Jones Index continues to climb new records in early 2018. Is it true driven by the optimism of global economic recovery?
tirto.id - The Dow Jones index rose more than 220 points on Friday (26/1/2018) last weekend and reached a new record. Since early 2018, this benchmark index has been 7.7 percent. In 18 trading days, the Dow Jones index recorded 11 times and is currently at 26,616. In addition to the Dow Jones index, the Standard & Poor's 500 index and the Nasdaq index also posted record highs.
Many factors that make the Dow Jones index continue unabated. A weaker US dollar makes US companies operating abroad enjoying increased sales. "The market is driven by optimism," Quicy Krosby, Chief Market Strategist at Prudential Financial, was quoted as saying by USA Today.
Not only institutional investors, retail investors are also seen returning to the market. Last week, according to Bank of America there was a flow of funds of 33.2 billion US dollars into the stock market.
Investors are also moved by more solid economic news. The government reported that GDP grew by 2.6 percent in the fourth quarter of 2017. This figure is lower than the 3 percent estimate, but there is still strengthening.
The strengthening is also inseparable from the speech delivered by President Donald Trump at the Davos Forum, Switzerland. In his speech, Trump described the current US successes, including capital markets that continue to strengthen, the highest levels of consumer confidence in two decades and low unemployment. "America is open for business. This is the best time to bring your business and investments to the US, "Trump said.
Keep climbing
In fact, the Dow Jones index has been up trending since Donald Trump came to power in early November last year. As quoted by The Guardian, market participants argue, Trump's promises are disclosed in last year's campaign such as trading restrictions and building a wall along the Mexican border does not seem to be happening.
The Dow Jones index has climbed more than 7,000 points or about 40% since President Trump was elected. Some stocks have climbed even higher since Trump became president, as Amazon shares rose 65%, Netflix shares rose 80%, Nvidia shares rose 213%. Similarly, Bank of America's shares rose 83%, or Best Buy, up 90%.
Stockbrokers see another opportunity. Trump's pledge to slash corporate and individual taxes seems more plausible. Businesspeople love this idea. Trump's pledge to cut regulation especially in the banking sector also made the bank's shares stronger. Seen from the eyes of business, Trump's promises do support businessmen in the US, including listed companies.
If properly implemented, Trump's tax-cuts plan will cut corporate and individual taxes worth 6 trillion US dollars. These funds can be utilized by the company to continue to expand. While individuals can utilize the remaining tax to spend or for investment.
In addition, issuers also posted solid performance. The US economy is expected to continue to grow even higher. These factors make the index in the stock market continues to strengthen.
This strong Dow Jones rise does not mean there is no risk in the US stock market. Historically there are some things that can make the reverse turn like a sudden inflation rate. In recent years, the inflation rate in the US is low and the labor market is reaching its peak, the unemployment rate being the lowest in 17 years. Theoretically, a rise in salary will push inflation higher.
If the rise in inflation is higher than the central bank's estimates, it is not impossible that the Fed will more quickly raise interest rates. Not only the Fed is the concern of investors. Other central banks were noticed. The Dow Jones risk factor is included in the calculations of the central bank. Very low interest rates make business fast growing. Investors also prefer shares rather than banking products. Conversely, if central banks raise interest rates too soon, the company's growth will slow down.
The other risks are trade war and real war. Trade rules can hinder the performance of issuers on Wall Street. Apple, for example, posted sales of 63 percent of overseas markets. If the US government impose rules that hinder its trading partners, it is not impossible that US companies outside the US will be affected.
The political situation can be heating up. The wars that occur can also make the Dow Jones index rate turns weaker.
How, in fact, in 2018 interesting to keep an eye on the movement of this Dow Jones index.