Break out your Dow 14,165 hats!
The Dow Jones Industrial Average, the great-granddaddy of the indexes, jumped out of the gate this morning, quickly passing its Oct. 9, 2007, of 14164.53, and completing a more than five-year odyssey from euphoria to despair…and emotionally at least back to somewhere in between.
The index was up over 14200, setting a new intraday mark as well.
It still has to close above 14164 for it to be “official,” but it’s a notable achievement nonetheless. The stock market has been on a wild ride. The Dow fell 53% from 2007 through the market’s low point on March 9, 2009, of 6547, with the vast majority of that coming after the September 2008 crash. Nearly four years to the day from that low, the Dow has rebounded 116%.
“It does carry some psychological importance,” said Jerry Webman, chief economist at OppenhiemerFunds. “What a market needs is good fundamentals, enough pessimism so there’s dry powder, and enough optimism so there’s a reason to take some risks.”
The market’s certainly full of pessimism and risk; it’s an odd time for a stock record. The indexes posted their first losing week of the year two weeks ago, when doubts started creeping in about the Fed’s dedication to its stimulus programs. The market seemed on the verge of a real breakdown just last Monday, after the results of Italy’s parliamentary elections roiled the Continent, raising fresh agita about the state of Europe.
None of the G-7 nations are growing much, if at all. Profit growth of the S&P 500 companies in the fourth-quarter was an anemic 4%, according to FactSet, and a significant number of CEOs are warning about prospects in 2013. Unemployment remains high, and wage growth stagnant. The political circus in Washington, D.C. is filling up all three rings; a big deadline looms on what’s called the continuing resolution that could force another government shutdown.
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Despite that, there are fundamentals behind this move, Webman, said. He points to the solid expansion of capital expenditures, as evidenced in this week’s durable-goods report, as a sign that the people on the front lines think there’s money to be made.
�It�s not a stock market that is running up on air, or leverage,� he said. But he acknowledged people still don’t trust the rise in the the indexes, and that there are obviously still issues facing the economy. �It�s not irrational exuberance. It�s the opposite of irrational exuberance.�
That proverbial wall of worry isn’t hurting the stock market, not much. The Dow is the first of the big three indexes to cross into fresh record territory, but a number of other indexes have already hit records. The Dow Jones Transportation Index, currently around 6018, hit a fresh record high, as did the broad Wilshire 5000. The S&P 500 is still a bit further off of its 2007 record high of 1565, up 7 Thursday at 1523. The Nasdaq Comp, which rose into the�stratosphere�during the dot-com boom, remains roughly 37 % off its 2000 record high of 5049.
The market’s next question is when the S&P 500 marches to a new record as well.
There certainly haven’t been many cheering fans along the parade route. Back in the dot-com days, they gave out hats when the Dow crossed 10000, and everybody was happy to throw caution to the wind. But after historic crashes in 2000 and 2007, investors are far more wary of going along for these rides.
Trading volume peaked early in 2009, right when the market was making its lows, and it’s fallen steadily since then. Even as equities have recovered, even as they’ve climbed higher and higher, there’s been a marked lack of trust in stocks from the general public.
Part of it is that viscous twice-in-a-decade burn, part of it was individual investors unable to compete in modern, computer-dominated trading. Part of it was the sense after the bailouts that the whole market is rigged for insiders.
The sell-side sees all this, and indeed has suffered (relatively speaking). The market isn’t quite as lucrative as it used to be; there isn’t as much to go around, which is why you see J.P. Morgan and others in the industry laying off bankers. The Street would love nothing more than to have this record chase convince mom and pop that it’s safe to get back in the water.
That’s usually when the bottom falls out. The trick is convincing mom and pop that Uncle Ben Bernanke won’t let that happen.
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