Investment idea: Dow Jones

In June the Dow Jones Industrial Average rose again towards a new record. On June 19, the index closed on a provisional record of 21.522 points.

Goldman Sachs, exchange-traded funds (ETFs) are the main reason that American indices have risen so strongly this year. Passive investing is becoming increasingly important within the stock market, so the analysts. At the end of the first quarter ETFs owned 6% of the American stock market (source: Goldman Sachs). The American Bank accounts for that ETFs have bought USD 98 billion of stocks during the first quarter, with which they are on course to invest USD 362 billion in stocks throughout 2017.

The fact that the markets are positive about American stocks is partly due to the economic growth. The United States has so far enjoyed the second largest economic growth this year since 1850.

Adjusted growth expectations

Goldman Sachs, however, warns that the strong demand on American stocks does not persist. Analysts count on a slight fall of the stock prices for the coming period, partly because the stock purchase programs decline. The first signs of this fall where already noticeable during the end of June. The Dow Jones dropped with 98.89 point or 0.5% to 21.310.66 points.

Added to this the International Monetary Funds (IMF) has adjusted their growth expectations for the American economy at the end of June. The estimate for 2017 has been reduced from 2.3% towards 2.1% and for 2018 from 2.5% towards 2.1%. The IMF claims that the uncertainty about the policy of the White House has increased. Proposals such as cutting expenses where low- and middle class incomes currently still benefit from, can lead to an ever more slower growth. Thus warns the IMF.

Now the question arises if the US will benefit from the new president. According to Rabobank however, the American economy is better off with Donald Trump as president because an impeachment will cost a lot of time and could damage the consumer confidence. Analysts don’t expect that the current investigations will end the presidency of Donald Trump, providing that his voters and the Republicans will continue to support him.

If Trump will remain president, Rabobank expects that the growth of the American economy will not accelerate, but reaches 2-3% per year. Whenever an impeachment is put into motion, the economic growth is expected to drop towards 1-2% per year.

The uncertainty around Donald Trump could cause a negative effect for the coming period on the Dow Jones among other things. It remains to be seen how far he can pursue his policies and which effects this is going to have on the American economy.

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