The global economy has gotten a lot more important to U.S. investors over the past 20 years, as interconnections half a world away can have dramatic impacts on stocks close to home. Yet for more than a year now, the U.S. economy has been one of the strongest in the world, offering a beacon of hope to global investors even as economic struggles in Europe and the emerging-markets world have held back some of the most promising economies across the globe. In response to the latest move from China's central bank to cut interest rates, the U.S. dollar soared Monday morning, and the Dow Jones Industrials (DJINDICES:^DJI) continued their winning ways. As of 12:15 p.m. EST, the Dow was up 96 points and on track to post its fourth all-time record high of 2015. Visa (NYSE:V) helped pace the Dow's gains, while oil stocks Chevron (NYSE:CVX) and ExxonMobil (NYSE:XOM) both weighed on the market.
China has been unhappy with the slowing pace of its economic growth, yet its central bank's reduction of two key interest rates by a quarter of a percentage point still took many analysts by surprise. With benchmark one-year loan rates at 5.35% and corresponding deposit rates at 2.5%, China's rates are still well above U.S. levels. But the move puts the U.S. in the unusual situation of being just about the only major economy in which interest rates appear likely to head up, rather than down, with stimulus measures in Europe and Japan also focusing on the negative impact of deflation, rather than any concern about overheating in economic growth.
That unusual situation has boosted interest in the U.S. dollar, which is approaching its highest level in more than a decade. Lower interest rates make foreign currencies look less attractive, and the strong U.S. economy has attracted foreign capital from weaker markets, further amplifying the push higher for the greenback.
Within the Dow, you can see the crosscurrents across industry sectors. Visa climbed 1.7% after big-box warehouse retailer Costco Wholesale (NASDAQ:COST) announced that it would begin processing payments through Visa beginning in April 2016. The move could add $100 million to Visa's bottom line, and with Visa still sporting the highest share price in the Dow pending its upcoming stock split, the card network giant's influence on the price-weighted average played a big part in lifting the market today.
The energy sector, however, continued to struggle, with both Dow oil stocks down about 1%. The big problem oil stocks face is that their earnings will be ugly throughout the coming year as investors get used to the impact of low oil prices. Integrated major energy companies like Exxon and Chevron are arguably better protected from price declines than some of their production-focused peers, as refining operations offer some growth opportunities to offset the decline in revenue due to lower realized prices on oil and gas. Nevertheless, with West Texas Intermediate remaining below the $50 per-barrel mark on Monday, investors are uncertain how far prices could fall.
The U.S. stock market is enjoying popularity not only domestically, but around the world. So long as America's economic engines keep firing smoothly, the upward impact on stocks could continue well into the future.