Why Do U.S. Stocks Keep Hitting Records? Here Are Five Theories

Summary

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Podcast Summary: Why Do U.S. Stocks Keep Hitting Records? Here Are Five Theories

Podcast: WSJ Your Money Briefing
Host: Jennifer Strong, The Wall Street Journal
Guest: Akane Ohtani, Reporter, The Wall Street Journal
Date: August 4, 2017

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Episode Overview

In this concise episode, Jennifer Strong and Akane Ohtani from The Wall Street Journal break down five leading theories on why U.S. stock markets—most notably, the Dow Jones Industrial Average—continue to reach record highs in 2017. The discussion focuses on corporate, economic, and investor-driven factors shaping the current market environment, making sense of the seemingly unrelenting stock market optimism.

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Key Discussion Points and Insights

1. Corporate Earnings Rebound

Timestamp: 00:59

• Akane Ohtani: "We've had a turnaround in corporate earnings... S&P 500 firms are actually on track for their third consecutive quarter of earnings growth."
  • After a period of global economic concern in 2015, U.S. businesses, particularly those within the S&P 500, are experiencing sustained growth in earnings.
  • Consistent corporate earnings are considered a key driver behind strong stock prices.
  • Notable Insight: Earnings growth provides a strong foundation for stock market rallies.

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2. Improved Global Economic Outlook

Timestamp: 01:33

• Akane Ohtani: "We've been seeing brighter forecasts for economic growth in places like, like Europe, India, China, and that is contributing to profit growth at big multinationals."
  • Unlike immediately after the financial crisis—when the U.S. was essentially carrying the global economic load—now major economies abroad are also growing.
  • This benefits large multinationals (e.g., Boeing, McDonald's) with significant overseas business.
  • A weaker U.S. dollar also helps U.S. firms’ international earnings.

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3. The 'Goldilocks' U.S. Economic Scenario

Timestamp: 02:27

• Jennifer Strong: "The US Economy is in a Goldilocks situation. What does that mean?"
• Akane Ohtani: "The economy is growing fast enough to support earnings growth, but it's not expanding too quickly... so the Fed looks like it's going to stay pretty accommodative for the time being."
  • 'Goldilocks' describes a rare, balanced state: steady, not over-heated growth, enabling the Federal Reserve to keep interest rates low.
  • Notable Quote: "That is the ideal situation for stocks." (Akane Ohtani, 02:51)

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4. Rise of Passive Investment Funds

Timestamp: 03:11

• Akane Ohtani: "If you take a look at flows into passive funds versus actively managed funds... Passive has really been on a tear over the last several years."
  • Huge inflows into passive index funds (e.g., ETFs) may be lifting overall market prices.
  • Less active stock-picking means more 'indiscriminate' buying across the market.
  • Potential downside: if sentiment reverses, market drops could be sharper due to this momentum.

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5. TINA: There Is No Alternative

Timestamp: 04:29

• Jennifer Strong: "There is no alternative. That sounds foreboding."
• Akane Ohtani: "Some people say it's... Tina. So basically the Tina theory... there is no alternative for returns..."
  • Low yields on safer assets (like government bonds) are making stocks the only attractive investment.
  • Treasury yields are low (~2.2–2.6%), so investors hunt for better returns in stocks.
  • Lack of inflation or major tax/fiscal policy changes means the status quo—favoring stocks—will likely persist.

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Notable Quotes & Memorable Moments

• On Earnings:
  • "Earnings growth is really what determines the path of stocks."
    —Akane Ohtani (01:15)
• On Global Factors:
  • "Better global growth but still not a terrible domestic outlook is really picking up the growth at multinational companies."
    —Akane Ohtani (02:06)
• On 'Goldilocks' Economy:
  • "The Fed looks like it's going to stay pretty accommodative for the time being. And that is the ideal situation for stocks."
    —Akane Ohtani (02:46)
• On Passive Investing:
  • "The fear is that that could be sort of fueling indiscriminate stock buying."
    —Akane Ohtani (03:42)
• On TINA:
  • "Basically the argument is that treasury yields are so low right now... stocks really look like the best place to get your return on money."
    —Akane Ohtani (04:35)

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Segment Timestamps

• [00:38] Introduction and episode theme
• [00:59] Corporate earnings rebound
• [01:33] Global economic outlook brightening
• [02:27] The 'Goldilocks' U.S. economy explained
• [03:11] Passive funds and their market impact
• [04:29] 'TINA'—no alternative to stocks

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Conclusion

This episode provides a clear, accessible overview of why U.S. stocks are experiencing prolonged highs in 2017. From earnings growth to global economic improvements, supportive Fed policies, shifts in investment strategies, and the persistent lack of attractive alternatives, each theory offers insight into today’s bullish market mood.

Learn more: Listen to the WSJ Your Money Briefing for daily financial news and insights.

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Transcript

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[WSJ Announcer]

This is yous Money Matters from the Wall Street Journal.

[Jennifer Strong]

Welcome to youo Money Matters. I'm Jennifer Strong in New York. The Dow crossed 22,000 for the first time this week. Why do stocks keep hitting records? Investors have some theories. Joining me here in the studio with a closer look is the Wall Street Journal's Akane Ohtani. Akane the first theory is that stock reflect the resurgent health of American corporations.

[Akane Ohtani]

Yes, that's right. We've had a turnaround in corporate earnings. Some of our readers might remember that back in 2015 there was a lot of concern about the global economy and how solid we were. But in the last year or so, we've seen a turnaround. And S&P 500 firms are actually on track for their third consecutive quarter of earnings growth. And so that's a really reassuring sign for a lot of people who say when it comes to the stock market, earnings growth is really what determines the path of stocks.

[Jennifer Strong]

Now next on the list, the global outlook is looking brighter.

[Akane Ohtani]

Yeah. So that's a little bit of an interesting point. Whereas, you know, in the years right after the financial crisis, it was really the US that appeared to be holding up the global economy. More recently, we've been seeing brighter forecasts for economic growth in places like, like Europe, India, China, and that is contributing to profit growth at big multinationals. So some of the best stock performers this year include companies like Boeing and McDonald's, which of course have big presences outside of the US and they've also benefited from a weaker dollar. The dollar has fallen quite a bit this year partially due to some more lukewarm economic data in the US and so that combination where you have better global growth but still not a terrible domestic outlook is really picking up the growth at multinational companies.

[Jennifer Strong]

The next one, the US Economy is in a Goldilocks situation. What does that mean?

[Akane Ohtani]

This is probably a term that only investors and analysts would use, but basically you have what they say is a rare favorable situation where the the economy is growing fast enough to support earnings growth, but it's not expanding too quickly. In that scenario, you might have the Fed rushing to raise rates but because the growth has been slow but steady, instead we have a situation where the Fed looks like it's going to stay pretty accommodative for the time being. And that is the ideal situation for stocks.

[Jennifer Strong]

So another theory investors have about why the Dow keeps climbing is, is that passive funds are propping up prices.

[Akane Ohtani]

Yeah, this is a bit more of a wonky one, but if you take a look at flows into passive funds versus actively managed funds. So funds that have human beings behind them controlling what stocks go in, what stocks go out. Passiv has really been on a tear over the last several years. And the amount of money that is moving into index tracking funds versus moving out of active funds, some people would argue is actually helping lift the overall stock market. It's hard to quantify exactly how much of a role that plays, but there is a ton of money coming into passive. And the fear is that that could be sort of fueling indiscriminate stock buying. So you're just buying the entire index essentially instead of picking certain stocks. And so if there's a reversal of sentiment, perhaps we might see a more accelerated pullback.

[Jennifer Strong]

We're talking about some theories as to why the market keeps hitting fresh highs with Akane Ohtani. And you're listening to youo Money Matters from the Wall Street Journal. Thanks for listening, everyone. Akane. Last but not least, here on your list, there is no alternative. That sounds foreboding.

[Akane Ohtani]

It actually has a cuter nickname. Some people say it's. It's Tina. So basically the Tina theory sounds a lot friendlier is, yeah, there is no alternative for returns, which is a bit of a bummer when you think about it. But basically the argument is that treasury yields are so low right now, they're still at around 2.26, 2.65. And in that kind of environment where there aren't that many investors who see bond yields rising dramatically, stocks really look like the best place to get your return on money. And it doesn't really seem like a lot of people necessarily anticipate that scenario turning around anytime soon. Big reasons being because inflation has been kind of slow to pick up. And also Congress has been struggling to push through some of these policies that people thought initially after the election might accelerate economic growth. So things like tax cuts and, and fiscal stimulus. And so as long as those sort of factors seem like they're not in play, it seems like the Tina effect will still sort of continue to reign over the market.

[Jennifer Strong]

That's the Wall Street Journal. Zakane Ohtani here in the studio. Thank you so much.

[Akane Ohtani]

Thanks for having me.

[Jennifer Strong]

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

[WSJ Announcer]

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