Near the Record Trifecta Again

 

On Thursday, the Dow Jones Industrial Average rallied more than 250 points, notching its first record close since January 26th, at 26,656.98.

That marked the end of a nearly eight-month correction. The S&P 500 also hit a new all-time closing high of 2,930.75.

The Nasdaq Composite index, while gaining 1% on the day, was the only one of the U.S. Big Three benchmarks not to close in record territory. But it still finished the day above 8,000, only 80 points (or 1%) below its own late August all-time closing high. (The Dow and S&P continued to advance Friday while the Nasdaq slipped a bit.)

This comes the same week President Trump ratcheted up the trade war with China and threatened to put tariffs on all $500+ billion worth of Chinese imports if progress is not made in negotiations. Right now, those talks seem to be going nowhere.

It also comes in what is statistically the worst month for stocks by far: According to Yardeni Research, the S&P 500 averages a loss of 1% in September; the only other months that are in the red are February and May, which have average losses of only 0.1%.

So, what does that mean for investors?

First of all, investors seem to be brushing off trade as an issue. Do the math, and it doesn’t amount to much in a $20-trillion economy. Also, the president didn’t immediately stick a 25% tariff on imports from China, but a milder 10%, and so far China’s response has been measured. Wall Street has come to believe this is mostly bluster, which wouldn’t be out of character for our Tweeter-in-Chief.

Second, the economy is doing very, very well. Measures of business and consumer confidence are through the roof—consumer confidence, for example, is at an 18-year high—and jobless claims, the number of people filing for unemployment insurance, are near a 49-year low. GDP is growing at a 3% clip and the official unemployment rate is below 4% for the first time since the dotcom boom. And corporate earnings are expected to post their third consecutive quarter of 20%+ growth.

But most of all, stocks are hitting new highs, even as most people expect the Federal Reserve to raise the federal funds rate twice more this year. That shows investors are no longer spooked by gradual rate hikes, giving Fed Chairman Jay Powell more leeway to raise rates until they reach a “normal” level, whatever that is.

It’s hard to argue with new highs—especially when there are good reasons for them and as the market enters the historically best part of the four-year presidential election cycle. Don’t fight the tape: truer words were never spoken.

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