The Dow Jones industrial average touched 22,000 for the first time on Wednesday, putting an exclamation point on a remarkable year in which the venerable benchmark rocketed more than 20 per cent higher.
What's driving the gains? Donald Trump claimed much of the credit in a tweet, and it's true the index of 30 of the biggest U.S. stocks took flight immediately after his election last November. But a more dispassionate analysis suggests that a broad pickup in the global economy is responsible for much of the Dow's rise.
The three biggest gainers on the Dow over the past 52 weeks have been airplane manufacturer Boeing Co., Wall Street investment bank Goldman Sachs Group Inc. and consumer electronics giant Apple Inc. Together they have accounted for about 44 per cent of the Dow's gains over that time span.
Each of those companies has extensive international operations. Boeing derives about 60 per cent of its revenue from outside the United States, while Goldman Sachs does about 40 per cent of its business in Europe, Asia, Africa and Australia. Apple depends on the world outside the Americas for nearly 60 per cent of sales.
The same theme is repeated as you look further down the list of the Dow's big recent winners. McDonald's Corp., Caterpillar Inc., Visa Inc. and Microsoft Corp. all boast large amounts of international revenue.
To be sure, some Dow components prefer to stick close to home. UnitedHealth Group Inc., Verizon Communications Inc. and Home Depot Inc. do all or nearly all their business in the United States. However, they are far outweighed in the index by globally diversified companies with foreign sales that in many cases amount to substantially more than their U.S. revenue.
This isn't unusual. While Mr. Trump may want to make America great again, his country's major stock indexes are globalized to an extent that surprises many investors. The companies in the S&P 500, a broadly based index of large U.S. businesses, derived 44.3 per cent of their sales from outside the United States in 2016, according to S&P Dow Jones Indices.
A strong earnings season has boosted all the major U.S. stock benchmarks. While lofty valuations suggest caution, more gains may be ahead if profits continue to expand. But that will hinge on how the world performs, not just the United States.