Thank Foreigners for Dow 22000

Summary

WSJ Your Money Briefing – "Thank Foreigners for Dow 22,000"

Date: August 3, 2017
Host: Jennifer Strong
Guest: Justin Lahart, Wall Street Journal

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Episode Overview

This episode examines the significant role that overseas markets, foreign economies, and international currency trends have played in driving the Dow Jones Industrial Average to the milestone of 22,000 points. Jennifer Strong and WSJ reporter Justin Lahart discuss how the strong performance of U.S. companies with large international exposure has been the main engine behind the U.S. stock market rally in 2017, and why American investors should, as Lahart notes, "thank the rest of the world" for the market's gains.

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Key Discussion Points & Insights

1. International Exposure is Fueling the Market

• Main Point: The rally to Dow 22,000 has been powered by companies with large overseas revenue streams, not so much by domestically-focused firms.
• Notable Quote (Justin Lahart, 00:57):

  “If you take a look at what has been fueling this rally, it’s the shares of the companies that have the most exposure overseas. Things like Boeing and Apple make a huge amount of their revenues overseas. Those are the companies that have really been pushing the market further.”

2. Data Analysis—Global vs. Domestic Stocks

• Lahart analyzed the S&P 500, comparing the 250 most internationally-exposed companies versus the 250 least exposed.
• Performance Difference (01:18):
  • Most internationally-exposed stocks: median return of about 16% in 2017
  • Least exposed stocks: median return of about 8%
• Notable Quote (01:18):

  “If you look at the median performance this year, the return is about 16% for those highly exposed stocks and about 8% for those less exposed stocks. And I can cut it a bunch of different ways and you get the same answer.”

3. Notable Exceptions

• International exposure is not a guaranteed path to success; some highly international companies like IBM have underperformed.
• Justin Lahart (02:02):

  “There’s plenty of exceptions. I mean, IBM is a huge exception, right? It’s one of the worst performers in the Dow this year. And it’s a company that has lots of exposure overseas.”

4. Why Overseas Is Driving Profits

• Economic Dynamics:
  • U.S. growth is steady but unspectacular; rising wages squeeze profits domestically.
  • Europe and other overseas economies are rebounding from slumps, leading to rising sales outpacing rising costs:

    “When an economy first starts getting going, profits go up a lot because the sales go up way more than the costs go up... That’s what’s happening in a lot of places overseas.” (Justin Lahart, 02:32)

• Profit Multiplier Effect:
  • Overseas sales are providing a "magnified profit growth effect" for U.S. multinationals.

5. The Role of the Dollar

• Currency Shift:
  • For years, a strong dollar hurt U.S. companies’ overseas profits when converting back to USD.
  • In 2017, the dollar weakened, boosting profits for U.S. firms earning in euros, yen, etc.
  • Notable Quote (03:22):

    “The dollar has been a headwind for overseas companies for a long time because the dollar was stronger, getting stronger and stronger versus other currencies. Now that’s switched... if you’re making money in euros or yen... it’s going to be worth more when you translate it back into dollars.”

• Further Clarification (04:10):
  • The gap between U.S. growth and the rest of the world is narrowing, strengthening foreign currencies relative to the dollar and benefitting U.S. firms with international sales.

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Memorable Moments & Quotes

• Foreign Growth as the New Engine (00:57):

  “Americans cheering the U.S. stock market’s latest milestone should pause to thank the rest of the world for making it possible.” — Jennifer Strong

• On the Magnified International Profits (02:32):

  “When you start, when an economy first starts getting going, profits go up a lot because the sales go up way more than the costs go up. So you get this sort of multiplier effect on your profits, or this, this magnified profit growth effect.” — Justin Lahart

• On Currency Changes (04:27):

  “Now the reverse is happening, right? … That’s a good thing when you take the money back and you think about it as a U.S. investor.” — Justin Lahart

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Timestamps for Key Segments

• 00:37 — Jennifer Strong introduces the theme: International influence on Dow 22,000
• 00:57 — Why overseas-exposed companies are fueling the rally (e.g., Apple, Boeing)
• 01:18 — Data breakdown: Highly exposed stocks vs. domestically focused
• 02:02 — Notable exceptions and the nuance of the trend; IBM example
• 02:32 — How overseas recovery multiplies profits for multinational firms
• 03:22 — Dollar’s role as a headwind, now a tailwind for U.S. companies
• 04:10 — How the changing global economic gap affects currency and profits

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Tone & Approach

The tone is analytical yet accessible, focusing on simplified explanations and data-backed reasoning. Jennifer Strong guides the discussion with concise questions while Justin Lahart provides nuanced, fact-based insights.

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Summary Conclusion

This episode underscores that the heights reached by the Dow in 2017 owe less to domestic economic strength and more to global growth and currency movements. U.S. investors are reaping the rewards of revived foreign demand and a weaker dollar. As Justin Lahart puts it, Americans celebrating the Dow’s new record have “the rest of the world” to thank.

Transcript

[A]

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[B]

Welcome to youo Money Matters. I'm Jennifer Strong in New York. Our next guest says you can thank foreigners for Dow 22,000. Joining me here in the studio is The Wall Street Journal's Justin Lehart. Justin, you say Americans cheering the U.S. stock market's latest milestone should pause to thank the rest of the world for making it possible.

[C]

Yeah, that's right. If you take a look at what has been fueling this rally, it's the shares of the companies that have the most exposure overseas. Things like Boeing and Apple make a huge amount of their revenues overseas. Those are the companies that have really been pushing the market further.

[B]

You've looked at all this data. What did you find?

[C]

Well, I combed through basically the entire S&P 500, not just the Dow, and took a look at exposures. And, you know, if I just do something simple like take a look at the most exposed stocks, the 250 stocks that are the most exposed, as opposed to the 250 at the bottom that are least exposed. If you look at the median performance this year, the return is about 16% for those highly exposed stocks and about 8% for those less exposed stocks. And I can cut it a bunch of different ways and you get the same answer. Basically, those companies are the ones that are moving the market more than the more domestically focused ones.

[B]

Any exceptions?

[C]

Oh, yeah, there's plenty of exceptions. I mean, IBM is a huge exception, right? It's one of the worst performers in the Dow this year. And it's a company that has lots of exposure overseas. So it's not like a panacea. But generally speaking, the more exposed a company is, the better its stock has done this year. If you take a look at what's happened, let's look at the US The US Is just sort of growing at the same pace for years and years and years. In the meantime, the job market is getting stronger. So wage costs labor costs are going up. That makes it hard to generate a lot of profits growth. Contrast that to someplace like Europe. So Europe was really on its back for a long time. Now it's starting to do better. We even have the European Central bank thinking about pulling back some of their stimulus. That's a big change there. When you start, when an economy first starts getting going, profits go up a lot because the sales go up way more than the costs go up. So you get this sort of multiplier effect on your profits or this, this magnified profit growth effect. That's what's happening in a lot of places overseas. So companies that do a lot of business overseas, where they have operations, they're getting that big profit push. And investors know that and they expect it. And that's one of the reasons that those companies are doing well. We also have the dollar. The dollar has been a headwind for overseas companies for a long time because the dollar was stronger, getting stronger and stronger versus other currencies. Now that's switched. Now the dollar is weaker than it was a year ago. So if you're making money in euros or yen or whatever, it's going to be worth more when you translate it back into dollars. So that's another good thing.

[B]

We're talking about stocks with Justin Lehart and you're listening to youo Money Matters from the Wall Street Journal. Thanks for listening, everyone. Justin, you touched on this a moment ago, but can you tell us more about the role the dollar is playing here?

[C]

Sure. So just take a look at what's happened with the dollar. The dollar has been extremely strong against other currencies, partly because the US Economy is doing better than lots of other economies. The Federal Reserve was tightening while other countries weren't made more sense. People wanted to invest in the US So the dollar goes up. Right now that difference between us and between the United States and other countries, that gap is narrowing and that's benefiting other currencies against the dollar. So if I'm a company and I earn money overseas for a long time it was bad. The dollar was strong. So, you know, even if I was doing great in overseas currency terms, once I turn those that currency into dollars, right. I had less of it and now it's. The reverse is happening, right? We're getting your yen is worth more, your euro is worth more. So right. That's a good thing when you take the money back and you think about it as a U.S. investor.

[B]

That's the Wall Street Journal's Justin Lehart here in the studio thank you so much.

[C]

Thanks.

[B]

And thank you for listening to youo Money Matters from the newsroom in New York, I'm Jennifer Strong.

[A]

For more insights, enable the Wall Street Journal skill on any device with Amazon Alexa. Get all of our podcasts as well as the latest news and market updates. The Wall Street Journal Listen Ambitiously, this podcast is brought to you by reliaQuest. Cybercriminals are constantly attacking. They want your data, they want your identity, they want your. ReliaQuest fortifies your business with agentic defense AI that detects, contains, and eliminates cyber threats in minutes. It helps your security team move faster at the work that matters most to protect the business now, and delivers insights to help them predict what's next. ReliaQuest agentic defense for the enterprise. Learn more at reliaquest.com that's R E L I A Q U E-S-T dot com.