Sometimes, we need to revisit the things we take for granted to understand what they do and how they work. Take, for example, the stock market, which is known as the leading economic indicator of the upcoming phase of the business cycle.
The stock market is a forward-looking mechanism. When it is bottoming, it is anticipating an upcoming recession. When it is rising, it is anticipating an expansionary phase. By its very nature, leading indicators do not look back. They are not perfect either.
Future economic indicators are: stock prices, supplier delivery delays (as capacity tightens, delays increase), and initial unemployment claims (high levels equal future production cutbacks; low levels indicate future production increases). The consumer price index, however, is not a future indicator.
What drives market movements in advance of actual changes in business conditions is investor expectations. If investors believe profits will rise, they bid stock prices up in advance of the actual event. If they believe profits will fall, they bid stock prices down in advance of the actual decline.
Another factor influencing market prices is current expectations regarding inflation. If it is anticipated that inflation will accelerate, interest rates will rise. If it is anticipated that inflation will slow, interest rates will fall, which also raises prices in the credit markets, as well as the stock market. But when inflation rates rise, both equities and fixed income fall in value.
In the international markets, where a large portion of government debt is absorbed by foreign investors, higher interest rates attract greater foreign investment. If interest rates are higher in the U.S., foreign investments in U.S. fixed income securities will increase.
The Dow Jones Industrial Averages
Companies have changed 60 times since the Dow Jones & Co. was originally founded in 1882 by Charles Dow and his partner Edward Jones. In 1896, it became the Dow Jones Industrial Average and consisted of only 12 companies to serve as a mirror to the U.S. economy. These 12 companies were considered the “titans” of American industry.
Clearly, the stock market has gone through wars and reacted with volatility during each of them, especially in the short-term. When war breaks out somewhere in the world, investors usually consider investing long-term, whether it’d be with stocks, bonds, mutual funds, exchange-traded funds or real estate, for a term of one year or longer.
When you are able to accept a certain amount of risk, and can be patient for a number of years, you are allowing the potential for higher rewards that often come from the Dow Jones’ market activity. “Did the market go up or down today?” people ask.
They are referring to changes in the Dow. Do you know what companies make up the Dow Jones Industrial Average?
The 30 large-cap companies of $10 billion or more that make up the Dow Jones Industrial Average (DJIA) today are:
3M Company (MMM), American Express (AXP), Amgen (AMGN), Apple (AAPL), Boeing (BA), Caterpillar (CAT), Chevron (CVX), Cisco Systems (CSCO), Coca-Cola (KO), Disney (DIS).
Dow, Inc. (DOW), Goldman Sachs (GS), Home Depot (HD), Honeywell International (HON), International Business Machines Corporation (IBM), Intel (INTC), Johnson & Johnson (JNJ), JP Morgan Chase (JPM), McDonald’s (MCD), Merck & Co. (MRK).
Microsoft (MSFT), Nike (NKE), Procter & Gamble (PG), Salesforce.com, Inc. (CRM), Travelers Companies (TRV), UnitedHealth (UNH), Verizon Communications (VZ), Visa (V), Walgreens Boots Alliance (WBA), Walmart (WMT).
At Hefren-Tillotson, We Care
We are just like you, all part of the same universe. We, too, are horrified at the suffering of the Ukraine people a world away. We bristle at high prices for gas, food, consumer goods and services that affect our personal budgets and our paychecks. And because we are just like you, we decided long ago to make a commitment to take care of our clients and their families when they decided to become part of our family.
We are dedicated supporters of numerous charitable, arts and cultural institutions. Our involvement and hard work on behalf of others inspired us to create our own community outreach program, HT Cares, because we understand the importance of family, goals and ambitions.
Long before other financial firms adopted research-based, unbiased advice relating to all aspects of clients’ financial situations, we pioneered personalized financial planning. By using the MASTERPLAN® approach, we see the value of a process that is both customizable and methodical.
Today, it is the gold standard in helping clients gain clarity in fine-tuning their wealth management strategies to navigate life’s transitions, because MASTERPLAN® is at the heart of their success. We’re proud of the fact that it has been the beating heart for so many clients for so many years. At Hefren-Tillotson, we want you to succeed.
Contact us at Hefren-Tillotson today to take control of your financial future like they did. You, too, can be on the right path to reach your financial goals for your family.