Investors are striking gold in most every market.
The Dow Jones Industrial Average crossed the 40000 mark for the first time Thursday amid an almost picture-perfect investing environment featuring resilient corporate profits, low unemployment and easing inflation.
Most everything is going up -- established Dow stocks, faster-growing tech shares, bitcoin and other cryptocurrencies, and even gold and other precious metals. Risk-averse investors have a bounty of options, too, including certificates of deposit offerings yields of about 5% and rising junk bonds and other fixed-income investments, adding to the glow.
Growth stocks are expensive, but the rest of the market isn't, says Ben Inker, co-head of asset allocation at Boston-based investment firm GMO. He says the overall investing environment, with its many reasonable choices, has rarely been this attractive in 24 years.
Although many Americans have a negative view of the overall economy, partly due to persistently high prices, they are more upbeat when it comes to stocks.
Zakeyma Peterson, a 35-year-old makeup artist in Brooklyn, N.Y., says she hopes to add to her holdings, partly because stores are "jam-packed" when she walks into Bergdorf Goodman and Sephora to stock up on products for clients.
"People are going to complain about everything, but they're still buying, " says Peterson, who started investing in March 2020, when she was at home with no clients during the pandemic.
The Dow's rise to 40000, and the surge in other market indexes, came in two stages. Last year, markets rallied on expectations that a falling rate of inflation would allow the Federal Reserve to cut interest rates.
More recently, there has been relief about robust earnings and excitement about advances in artificial intelligence. Quickly creating and analyzing enormous data sets could produce a range of innovations and improvements, from coordinating construction crews and bringing efficiencies to manufacturing to educating young people and developing new drugs, optimists say.
A new class of obesity drugs known as GLP-1s is raising the possibility of new health benefits for Americans that eventually might cut overall healthcare expenditures. Some also point to potential gains from efforts by companies to reshore, or bring manufacturing and other endeavors to the U.S. from abroad.
"We have fundamentally changed the economy," says Gary Cohn, vice chairman of IBM and former director of the National Economic Council. "Companies are investing more in the United States than they have in a long period."
Even former skeptics are warming to stocks. In January, Steve Eisman, a senior portfolio manager at Neuberger Berman, said on CNBC he worried "everybody is coming into the year feeling too good."
Today, Eisman says the market is in a better position than in the 1990s, a time when unemployment was low and excitement about the internet drove a tech frenzy.
"I'm feeling pretty blissful," he says.
Adds Chris Davis, chairman of Davis Funds, who usually considers himself something of a worrier: "There are a lot of attractively priced stocks and it does feel like Goldilocks, everything feels just right...Of course, Goldilocks ended with the bears coming home and all hell breaking loose."
One potential worry: The U.S. government is expected to pay an additional $1.1 trillion in interest over the coming decade, according to the Congressional Budget Office. Bill Gross, the co-founder of investment giant Pacific Investment Management, has said the government's borrowing and spending has been far too excessive, driving 10-year Treasury yields higher and potentially hampering the economy.
"Sooner or later, higher yields will have an impact," he says.
More investors are bullish, which presents another somewhat ironic concern. Optimism would seem to be good for the market, but analysts tend to be concerned when most investors are upbeat because it suggests there are few bears left to throw in the towel and start buying.
It is also true that investors tend to do a poor job of timing markets and sometimes get enthused just before a pullback. The Investors Intelligence Bull/Bear Ratio demonstrates the widespread optimism, with 56.5% of respondents saying they are bullish and just 17.7% saying they are bearish as of May 14.
"The S&P 500 is now up nearly 50% from the bear market low in October 2022, so naturally, almost everybody is bullish," says Ed Yardeni, an economist who has been more optimistic than most over the past two years but is concerned about this shift.
Some say the economy's bright outlook is something of a mirage, and that troubles will become clear later this year. Record housing prices and high mortgage rates make it hard for many Americans to afford a home, says Joseph LaVorgna, chief economist of SMBC Nikko Securities.
Baby boomers and other wealthy Americans remain in good financial positions, but Federal Reserve members have raised concerns about low- and moderate-income households. These consumers have exhausted their savings and could be "increasingly coming under pressure," according to minutes of the Fed Open Market Committee's late-January meeting. The Fed members cited "increased usage of credit card revolving balances and buy-now-pay-later services, as well as increased delinquency rates for some types of consumer loans."
Earlier this year, LaVorgna wrote a report titled "We Are Not Fully Out of the Recessionary Woods," partly due to his prediction that consumer spending and labor demand will slow.
None of that worries David Foley, a 64-year-old in Skidaway Island, Ga., who is all in on stocks even after retiring four years ago. Friends have nudged him to take some chips off the table and turn to safer investments such as bonds. He has no plans to do so, pointing out that stocks have bounced back from violent swoons over the past decade.
"I'm betting on America," Foley said. "It's been a very successful strategy."
Write to Gregory Zuckerman at Gregory.Zuckerman@wsj.com and Gunjan Banerji at gunjan.banerji@wsj.com
(END) Dow Jones Newswires
May 16, 2024 23:00 ET (03:00 GMT)
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