It’s safe to say the Dow Jones Industrial Average is in a rut. The basket of 30 of the world’s biggest companies has gone 84 days, or nearly three months, without a gain of 1%. Pair that pattern with historically low volatility and investors are seeing a trend they haven’t witnessed in a decade, as noted by The Wall Street Journal’s Market Data Group.
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Goldman Sachs (GS) described the trading action in the S&P 500, a broader gauge of stocks, as being “defined by low volatility and low return dispersion” in 2017, according to a note published earlier this week.
Should investors be worried? Not necessarily.
Of the 90% of S&P 500 companies that have reported second-quarter earnings, 73% have exceeded profit growth estimates, according to John Butters, senior earnings analyst, at Factset. As a result, the S&P’s expected growth rate has improved to 10.2% versus 6.4% on June 30, Butters said.
Dow members Boeing (BA) and Apple (AAPL), top stock performers this year, have seen their share prices hover near record levels. Boeing generated $5 billion in cash flow in the second quarter, a number the world’s biggest maker of jetliners dubbed “robust.” As for Apple, the world’s most valuable company, it sold 41 million iPhones, despite the looming new iPhone 8 release. Plus, Apple’s cash hoard topped $261 billion, a new record.
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In Washington, President Donald Trump has ushered in a pro-business, pro-growth attitude that has helped push the Dow, S&P 500 and Nasdaq to record levels this year, despite a slight pullback in August. While the administration failed to enact health care reform, it may have better luck with tax reform. Treasury Secretary Steven Mnuchin and National Economic Advisor Director Gary Cohn have laid the basic framework for fresh tax policy. At the same time, the GOP and American business leaders are doing their part. Just this week, they have scheduled back-to-back visits to companies including AT&T (T), UPS (UPS), Intel (INTC) and Boeing, as detailed by FOX Business, to shore up support.
Still, for superstitious investors August can spell trouble. Rewind a decade ago to August 2007, which is when some market watchers suspect the most recent global financial crisis began. BNP Paribas was forced to freeze U.S. assets as subprime trading dried up, as detailed by The Wall Street Journal. This event put central bankers on notice ahead of the eventual teetering of Bear Stearns in March 2008 in which JPMorgan (JPM) was strong-armed into buying the bank at $10 per share, a sizeable discount. In September, Lehman Brothers would collapse setting the U.S. mortgage and housing crisis in motion.
That was then, this is now. For starters, U.S. banks have shored up capital requirements under the supervision of the U.S. Federal Reserve. Simply put, these institutions have a capital cushion to withstand a potential crisis.
Additionally, the U.S. economy has generated roughly 1.29 million jobs since Trump was inaugurated, driving a rebound in the housing market and 401(k)s as well as putting the economy on an upward trajectory in the final months of what has been an interesting year on Wall Street and in Washington.
On Friday, investors will get more clarity on the U.S. economy from Federal Reserve Chair Janet Yellen who has a planned speech on financial stability. She’ll deliver it while attending the annual economic symposium hosted by the Federal Reserve Bank of Kansas City in Jackson Hole, Wyo. that kicks of Thursday.
Suzanne O’Halloran is Managing Editor of FOXBusiness.com and a graduate of Boston College. Follow her on @suzohalloran