What's Driving the Stock Market's Recent Surge?

Over the past few months, the stock market has been on a tear. The S&P 500 has surged to new highs and major indexes have hit levels not seen since before the Great Recession of 2008-2009. So what’s behind this most recent surge? A whole host of things, but if you had to boil it down to one thing, it would be the strong economic growth numbers that have come out recently and led the Federal Reserve to announce another rate hike in December 2017, which will raise rates by 0.25% from 1% to 1.25%.

Signs point to lower interest rates

1. Stocks tend to do well when interest rates are low. That's because lower rates make it cheaper for companies to borrow money and easier for consumers to get loans.

2. The Federal Reserve recently signaled that it could cut rates later this year, which sent stocks soaring.

3. Inflation has been muted lately, which is another factor that could lead the Fed to lower rates.

4. The stock market is also being buoyed by strong corporate earnings.

5. Most analysts expect the market to continue to rise in the short term, although there could be some volatility along the way.

6. In the long-term, stocks are still a good investment despite recent gains.

The GDP growth rate is strong

According to recent data, the U.S. economy is growing at a healthy clip. In the second quarter of 2018, GDP growth was 4.2%, marking the best performance in four years.

Bigger earnings from US companies

One of the main drivers behind the stock market's recent surge is bigger earnings from US companies. In the first quarter of 2018, earnings for S&P 500 companies were up 14% from the same period a year ago. And it's not just that profits are rising, but also that expectations for future earnings growth are high. Analysts are forecasting earnings to grow by 20% in 2018 and 2019. That expected growth is one of the main reasons why stocks have been doing so well lately ข่าวIT.

Investors are less pessimistic about the trade war with China

In recent weeks, there's been a surge in the stock market as investors have become less pessimistic about the trade war with China. This renewed optimism is based on a number of factors, including news that President Trump and President Xi Jinping agreed to not impose new tariffs while they continue negotiating over the next 90 days. Another factor contributing to this optimistic outlook is news that some Chinese-based factories are ramping up production levels in response to reduced uncertainty over U.S.-China trade tensions. On top of this, job growth has been steady and GDP growth continues at an upward trajectory, which is both good signs for an economy generally more confident about its future prospects.

A strengthening US dollar

One of the key drivers behind the stock market's recent surge is a strengthening US dollar. A stronger dollar makes US exports more expensive, which can hurt corporate profits. However, it also makes imported goods and materials cheaper, which can boost profits for companies that use a lot of imported inputs. In addition, a stronger dollar can attract foreign investors to US stocks and help push prices higher.

Bond prices have risen

The stock market has been on a tear lately, and bond prices have been rising right along with it. But what's driving this surge? One explanation is that stocks are trading at historically high valuations relative to company earnings, so people might be seeking out bonds as an alternative. 

What does the rise in interest rates mean for investors? Will stocks stay hot for long? 

Stay tuned for our next blog post about how you can tell if you're investing in bonds or stocks.

An improving global economy

The U.S. stock market has been on a tear lately, with the Dow Jones Industrial Average and S&P 500 index hitting all-time highs. So what's driving this surge?