The TINA-Effect: Why The Dow Jones Keeps On Climbing

by: Nico Inberg

The American bourses keep on flying high, while the economic news is not getting much better. Sluggish job growth and soft retail sales seem not to help but the Dow Jones just keeps setting new records. Why is it that in these insecure times the big bourses just keep on climbing?

The paradox is that bad economic news seems to be good for the stock market. Investors are looking for safety and a decent return on their initial investment. And while stocks are still looked at as a reasonable insecure asset class, there is a Group of shares that has been separated from the herd. These stocks have an outstanding track record on dividend payments, even more; they are famous for hiking their dividend for a fair amount of years. These so-called Dividend Aristocrats lead the way to higher ground and are nowadays seen as more stable than government bonds. The Dow Jones Industrial Average is full of these stocks and that is the reason that we are looking at new highs there almost every day.


Ever heard of the TINA-effect? There Is No Alternative. The money that falls free from the bonds that are being sold to the Fed has to be reinvested. But: government bonds from the Triple AAA countries are very expensive and have almost no yield, and bonds from the non triple-AAA are just not safe enough. Same goes for real estate. Even worse, cash stashed at the wrong bank can be confiscated within hours. Because of the fact that the multinationals known as the Dividend Aristocrats have proven to deliver at all times, the big investors would rather take their changes with Exxon Mobil (NYSE:XOM), 3M (NYSE:MMM) and McDonald's (NYSE:MCD). And it works. Because everybody is doing it. Moreover, if the economy really gets started, these companies will profit anyway. And because of the TINA-effect there will always be flooding money to this category. By the way, the Dow stocks aren't even that expensive, with a price-earnings ratio just below 16 there is still a little upside left. (source.

Eurostoxx 50

With regard to the European stock markets, there aren't many of these companies. However, there are some, and they are mostly in Germany. Companies that have turned their focus away from home market Europe and are aggressively investing in China are still attractive. Because of the overall negative sentiment on Europe these stocks are still rather cheap compared with their American equivalents. The dividend track record of companies like BASF (OTCQX:BASFY), Siemens (SI), Volkswagen (OTCPK:VLKAF) and Total (NYSE:TOT) are solid. And while at the moment the euro is still under pressure for some time, European exporters could well benefit from this. For those people who don't (yet) believe in a European Armageddon, the Eurostoxx 50 could provide some decent chances for the coming three to six months.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.