Positive economic indicators, coupled with the pro-growth policies of President Donald Trump, have fueled business sentiment and investor confidence after the presidential election.
The Dow Jones Industrial Average has soared more than 25 percent since November, hitting the 23,000-mark for the first time on Oct. 17. It is the index’s fourth milestone this year.
Other indices, including the S&P 500 and the Nasdaq Composite, also posted all-time highs in September and October.
“The U.S. has gained more than 5.2 trillion dollars in Stock Market Value since Election Day! Also, record business enthusiasm,” Trump wrote in a tweet on Oct. 16.
Corporate earnings, a big catalyst for the stock market, have made a strong comeback this year. Companies within the S&P 500 reported more than 10 percent growth in both the first and second quarters. It was the first time the index recorded two consecutive quarters of double-digit growth since 2011, according to FactSet, a data-gathering firm.
As the third-quarter earnings season gets underway, U.S. corporations have started to report solid results, beating estimates.
As of the morning of Oct. 18, only 52 companies have announced their results, with 81 percent beating profit forecasts, according to FactSet.
“The percentage of companies beating earnings estimates and revenue estimates are running above the five-year average,” said John Butters, senior earnings analyst at FactSet.
However, the U.S. insurance sector is expected to be a drag on the overall growth of third-quarter earnings, due to the effects of hurricanes.
If companies continue to beat analysts’ estimates, a 6 percent earnings growth for the third quarter can be achieved despite the weather impact, Butters said.
Wall Street analysts are expecting double-digit growth in the last quarter of this year, as well as the first two quarters of 2018, according to FactSet.
— Donald J. Trump (@realDonaldTrump) October 17, 2017
Surge in Confidence
Trump’s policies, including deregulation, tax cuts, and infrastructure investment, have raised business optimism and hence encouraged companies to invest and hire more.
The U.S. economy grew more than 3 percent in the second quarter, buoyed by business investments and consumer spending.
“Our country and our economy cannot take off like they should unless we transform America’s outdated complex and extremely burdensome tax code,” said Trump at The Heritage Foundation’s annual President’s Club Meeting on Oct. 17.
The tax reform plan by the Trump administration proposes to cut the corporate tax rate by 40 percent.
Tax cuts may boost the corporate earnings by more than 10 percent, according to a report by Goldman Sachs.
“Although many details remain unclear, the White House plan as proposed could boost 2018 S&P 500 adjusted earnings by 12 percent,” stated the report.
“In addition to the direct earnings benefit, the combination of corporate and personal tax reform could spur faster economic growth.”
The U.S. economy added on average 172,000 jobs per month between November and August, according to the Bureau of Labor Statistics. In September, however, employment dropped by 33,000 due to the effects of hurricanes on the leisure and hospitality sector. It was the first monthly decline in seven years.
Despite the negative jobs number, the unemployment rate dropped to 4.2 percent, the lowest rate in 16 years.
According to a Business Roundtable survey conducted among CEOs, 87 percent of the CEOs identified the existing U.S. tax code as the most important drawback for the U.S. economy. In an earlier survey, 76 percent of company leaders said they would hire more people if tax reform were successfully implemented.
Consumer sentiment has also surged to record highs, beating estimates, according to the University of Michigan’s monthly survey. The index of consumer sentiment jumped to 101.1, the highest level since the start of 2004.
“The data indicate a robust outlook for consumer spending that extends the current expansion to at least mid-2018, which would mark the 2nd longest expansion since the mid-1800s,” wrote Richard Curtin, the survey’s chief economist, in a note.
“While the early October surge indicates greater optimism about the future course of the economy, it also reflects an unmistakable sense among consumers that economic prospects are now about as good as could be expected.”