Neither War Nor Politics Can Stop This Stock Market Steamroller

By Brian O'Connell

The blockbusters seem to jump right off the page.

The health care repeal debacle was followed by North Korea and nukes, and Charlottesville with neo-Nazis and protestors with flamethrowers.

Sounds like a recipe for a crisis on Wall Street, right?

Think again. The Dow Jones Industrial Average keeps right on tracking upward, with the Dow moving 400 points in a 30-day period where all of the above fiascos played out on the American stage.

Year-to-date, the Dow is up 10.3 percent and shows no real signs of slowing down, despite threats of nuclear warfare, an imploding national health care system, and total political dysfunction in Washington, D.C.

The first six months of 2017 were the best start to a year for the S&P 500 index since 2013, notes Matthew Eads, investment portfolio manager at Eads & Heald Investment Counsel in Atlanta.

Plus, the Dow Jones, NASDAQ and S&P 500 all reached new all-time highs during the 2nd quarter 2017.

“The steady economic landscape, strong corporate earnings growth, and accommodative monetary policy continued to support the upward trend in stock prices.” Eads said.

Long Market Boom

Overall, the S&P 500 has risen 258 percent since March 2009, which marked the market low following the Great Recession of 2008.

“The duration of the current bull market, at 99 months, is the second longest on record, eclipsed only by the 114-month bull market that started in October 1990,” Eads added. “The index rose 417 percent during the previous rally.”

It’s important to distinguish between noise surrounding the stock market and actual drivers of the stock market, Eads said.

“At the risk of oversimplifying long-term market trends, the fact of the matter is that stock prices ultimately follow corporate earnings growth,” he explained. “Shorter term, stock prices may fluctuate due to noise such as North Korea or the failed healthcare repeal/replace.”

Aside from geopolitical and domestic policy issues, Eads said there are strong
fundamentals in place for the United States and the global economy with respect to solid corporate earnings growth trends.

“This is why the stock market has continued to press ahead in spite of surrounding noise, he said.

The U.S. stock market has survived two world wars, the Great Depression, oil embargoes, Gulf Wars, political upheaval and so on.

“Despite temporary road bumps along the way, the stock market will continue to be one of the great wealth-generating mechanisms,” Eads said.

Wealthy Investors

Investor tenacity plays a role in the stock market steamroller, too.

“The ownership of the stock market these days is typically made up of wealthy, long-term investors,” said Jeff White, financial analyst at FitSmallBusiness.com in New York City. “Retirement accounts make up about 35-40 percent of the total stock market, and these are long-term accounts managed by wealthy corporations, in most cases.”

Those wealthy corporations aren't deterred by the negative politics and news these days, because it happens so frequently, White said.

“They're betting on the economy over the rumblings of world leaders,” he added. “Other large chunks of money in the stock market are comprised of investment companies, insurance companies, and foreign entities. None of these are likely to be scared off by the fear of potential war between countries that have been threatening it for many years.”

Market behaviors usually account for imminent bad news, and when nothing transpires, the market routinely moves on when external, negative events fail to materialize.

“The markets are pretty simple to understand,” said Richard E. Reyes, a financial planner with Wealth & Business Planning Group in Maitland, Fla. “If history is a guide, the fear leading up to an event has a much larger impact on financial markets than the event itself. It's no different this time.

“Profits drive stocks, and when events take the focus away from fundamentals, buying opportunities arise.”

Brian O'Connell is a former Wall Street bond trader, and author of the best-selling books, The 401k Millionaire and CNBC's Guide to Creating Wealth. He's a regular contributor to major media business platforms, including CBS News, The Street.com, and Bloomberg. Brian may be contacted at [email protected].