What's going on?
US stocks closed at a new record high on Thursday (tweet this)! All that concern from last week seems to have evaporated…
What does this mean?
Last week, markets suffered through a mini-shock as investors appeared to be getting anxious over the ability of President Trump’s administration to push through its pro-growth initiatives (like tax reform). But that concern appears to have been left by the wayside – US stocks gained almost 0.5% on Thursday to decisively “break through” to a new all-time high (they had come close to breaking through numerous times in recent months).
Why should I care?
The bigger picture: The weaker dollar probably has something to do with it.
Yes, US stocks are at an all-time high, but the US dollar has fallen almost 5% this year versus other major currencies. The weaker dollar helps US stocks partly because lots of US companies make money internationally – and when the dollar weakens, that overseas income is worth more when it’s translated back to dollars (and, so, boosts their US dollar-denominated stock prices). So, the gains for US stocks are not quite what they seem because internationally-orientated investors have to offset their losses from the declining value of the dollar against their stock market gains.
For markets: Strong performance leads to greater confidence in the market… which can lead to even stronger performance.
If your neighbor is having a fantastic party, you’re more likely to pop over for at least “a drink”. Similarly, potential investors that are sitting on the sidelines, watching others have all the fun, are going to be tempted to invest in stocks. That can create a sort of snowball effect that pushes up stocks even further. Of course, at some stage, too many people get too confident – but apparently that’s a problem for another day! (Note: a consistent investment strategy that neither gets too confident nor too pessimistic is usually recommended!).