The Dow Jones Industrial Average set an all-time record for the eighth day in a row, closing at 22,092 Friday. Bolstered by the combination of strong corporate earnings and low-interest rates, the stock market is poised to continue to grow, according to some analysts. But they also advise that there are some key indicators to watch for that could be signs of a possible downturn or correction.
“Dow 22,000 is a fairly arbitrary number, but the stock market's strong performance is a reflection that the economy and business environment are a lot better than most people think,” said Andrew Adams, market strategist for Raymond James Financial Inc.
The Dow Jones average tracks the performance of 30 major American companies. Much of the Dow’s recent rise can be credited to aerospace giant Boeing, which has seen its stock prices climb as much as 70 percent since President Donald Trump was elected in November. Overall, corporate earnings and the weakening strength of the U.S. dollar are fueling the stock market’s growth.
Adams expects the slow but steady rise to continue for a while at least.
“We contend that the American economy and the global economy are better than most people believe,” Adams said. “And there is still plenty of room for improvement, but we are seeing sustainable growth and a general expansion.”
Brad McMillan, chief investment officer at Commonwealth Financial Network, agreed — but was more measured in his optimism. “We’re getting close to the end of the road, but we’re not there yet,” he said. McMillan cited the year-to-year job growth as one indicator to keep an eye on. A drop in that number could be one sign of a potential downturn in the market. “If job growth goes negative, that’s where you have trouble.”
Adams also advises investors to keep an eye on corporate earnings.
“Right now, earnings are expected to be good over the next few quarters, and it's going to be hard for sellers to push stocks down too much while earnings are still growing,” he said. “If earnings start to disappoint, however, that would be when we're more likely to see some significant weakness.”