Dow Rebound: How Foreign Central Banks are Boosting U.S. Stocks

In a global economy, actions around the world can help or hurt stocks. Find out how foreign interest rate policy is helping the Dow.

Feb 27, 2014 at 12:30PM

Since the first trading session of February, the Dow Jones Industrials (DJINDICES:^DJI) have gained more than 850 points, clawing back much of the ground they lost during the previous month. Today's 35-point move up as of 12:30 p.m. EST comes at the same time that the 10-Year Treasury Yield (TREASURY: TC10Y) is down 0.03 percentage points to 2.65% and once again nearing its lowest level this year.

The failure of interest rates to rise has made bonds one of the most surprising winners so far in 2014. But one reason the Dow is doing so well is that the United States is not the only country that is embracing a low-interest rate policy. Bond investors around the world believe that even as some of the more extraordinary central bank monetary policy measures start to fade, accommodative rates will last for some time.

It's not just the U.S.
Many investors believe that the U.S. is the only country that has been aggressive in keeping rates low. But countries around the world have taken similar measures; in fact, conditions in other countries have actually led to more aggressive policy shifts. For instance, Japanese Prime Minister Shinzo Abe's attempts to revive the nation's economy have involved explicit efforts to devalue the once-soaring yen; the result has been a revival for the country's export economy. That has helped Toyota, Sony, and other consumer-product exporters by making their goos more attractive in foreign markets, reversing a long trend that had presented huge challenges to Japan's industrial giants and created the near-constant threat of deflation. Moreover, the policies have been to the benefit of the entire Japanese stock market.

At the same time, Europe has faced more recent economic struggles than the U.S., with the eurozone just now starting to show signs of coming out of recession. As a result, the European Central Bank has continued to keep rates low, and investors have expected that the ECB might indeed cut rates further in order to ensure a margin of safety to avoid a double-dip recessionary event. At its most recent meeting, the ECB chose not to make additional reductions, and that lifted the value of the euro against foreign currencies such as the U.S. dollar.

Forex and you
But the impact of foreign interest rate policy goes beyond currency exchange rates and bonds. It also has important long-run implications for the Dow.

For many Dow components, exchange rates are a direct driver of profit. McDonald's (NYSE:MCD) gets a huge portion of its overall revenue from its overseas restaurants, and a strong U.S. dollar in recent years has played a role in its relatively sluggish growth. Similarly, Procter & Gamble (NYSE:PG) has worldwide brand recognition, and doing business in just about every nation in the world, P&G has to deal with the challenges of earning income in foreign currencies of all types.

If the Fed were the only national central bank looking at potential changes to its monetary policy, it could promote dollar strength to the detriment of McDonald's, P&G, and other Dow stocks that rely on foreign revenue to a substantial extent. But because of the almost competitive efforts among central banks to come up with the best solutions for their respective constituencies, it's possible that low rates both in the U.S. and abroad could still be consistent with a rising Dow Jones Industrial Average well into the future.

The biggest winners from low rates
One big beneficiary from low rates has been dividend stocks. But which dividend stocks in particular are the best? Our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends McDonald's and Procter & Gamble. The Motley Fool owns shares of McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers