Dow spikes to all-time record high
The Dow Jones Industrial Average powered to an all-time record high Tuesday exactly four years after hitting bottom in the worst economic crisis since the Great Depression.
After more than doubling its value in a steady march upward since March 2009, the Dow assaulted the record from the opening bell and by early afternoon was up more than one percent at 14,278.87, a solid 80 points above the former intraday trading record set on October 11, 2007.
The broader index of the US markets, the S&P 500, was also higher Tuesday, but at 1,542.69 remained 2.2 percent below its all-time trading high.
It was a dramatic rebound that came even as the broader economy continued to struggle to leave behind the 2008-2009 recession, and the government in Washington battles over how to trim its massive deficit, a legacy of the economic crisis.
The Dow, which weighs the stock prices of 30 top US companies in a range of industries, and has long been the main gauge of health in the capital markets, was last at these levels in October 2007, the virtual eve before a financial storm engulfed markets.
A bursting of the housing market and stocks bubble unleashed the deepest recession since the 1930s.
In the crash the Dow plunged 54 percent over 15 months, the impact wiping out the savings of millions and feeding a crisis in the financial industry that forced the government to bail out banks and two major automakers.
But the rebound of company earnings, and with the Federal Reserve staying the course with an aggressive stimulus program involving high liquidity and record-low interest rates since the end of 2008, have fed the recovery in the stock markets.
Also helping has been a set of recent economic data that has been generally solid, if unspectacular.
It has raised new questions of whether a fresh, dangerous bubble is building in capital markets, an issue that has been debated in recent meetings of Fed policy makers.
But analysts mostly dismiss that, and describe rising, but cautious, confidence in the real economy.
Compared with the economic conditions in 2007, today's market looks stronger, said Art Hogan of Lazard Capital Markets. For one thing, corporate balance sheets are robust and support investment.
"The economy is in a better place," said Hogan. "The last time we were here, the economy was about to fall off a cliff."
Greg Peterson, director of research at Ballentine Partners, said the valuation multiples of earnings are low compared with historic norms.
"This high is imminently reasonable," Peterson said. "It's not a bubble.
The rise comes despite several headwinds that would not appear conducive to new market records, including continued recession in Europe; the slowing effect of $85 billion in mandatory federal spending cuts from March 1; still-high joblessness and and tougher conditions for the average consumer who faces a higher payroll tax and higher gasoline prices at the pump.
Chris Low, chief economist at FTN Financial, said the record "is something that's been building for months and months."
"It's always significant, particularly significant because this economic cycle has been so challenging," Low said.
Tuesday's surge came on the heels of rising equity markets in China and throughout Europe, Low pointed out.
The rally gained additional support mid-morning from a pickup in US services sector growth in February, according to the ISM purchasing manager survey.
In addition, the housing sector continued to show progress. For instance, pending home sales in January were 9.5 percent above the year-ago level, according to the National Association of Realtors.
Still, recent economic reports suggests that the Dow is outpacing the economy as a whole.
Last week, the US Commerce Department reported that fourth-quarter economic growth came in at just 0.1 percent, and the unemployment rate has been stuck around 7.9 percent.
Some analysts see the Dow lingering in the current range until the real economy takes off with more force. Low predicted most equities would have a hard time growing revenues much beyond 2 percent in the near term.
"There is very low revenue growth in the S&P 500," Low said. "It is still positive, but it's not very fast."
But Paul Edelstein, an economist at IHS Global Insight, offered a more optimistic outlook.
"There's a lot of reasons for stocks to move higher" such as higher earnings and supportive monetary policy, Edelstein said.