125.95(0.89%)
After spending the better part of a month flirting with a breakout, the Dow Jones Industrial Average (^DJI)
finally set a new record high today, trading as high as 14,286
intraday, before closing at 14,253.77. The prior closing high was 14,164
set on October 9, 2007.
Today's record-breaking close marks an unofficial end to one of the most troubling financial periods in American history. Precipitated by an implosion of the mortgage market and a wildly over-levered banking system, stocks lost more than 50% during the 17 months after setting the prior record in 2007. It was a period during which a collapse of the entire global financial system seemed very much at risk.
Many argue that the stock market has been artificially inflated by government intervention during the financial crisis and so called "great recession" that lasted from December 2007 to June 2009. To this day the Federal Reserve is still adding $85 billion worth of stimulus every month; presumably inflating asset prices in an effort to generate economic activity.
Nesto makes this bearish case in the attached video, arguing that the eventual end of government stimulus could cause stocks to have a collapse similar to that of 2007 once the Fed "takes away the punchbowl."
All of which is for another day. Americans who have stayed in the market through the highs and lows of the last decade are finally ahead, if only on paper. Let it ring down through the ages: Today, March 5, 2013 the Dow Jones Industrial Average made a new all-time high!
By way of celebration here are 20 things you may not have known about the Dow Jones Industrial Average. Feel free to toss them around to impress your friends:
The Dow Jones Industrial Average opened at 40.96 on May 26, 1896
- Components of the index are determined by Dow Jones Indexes a division of the CME Group
- Prior to today the record closing high was 14,164 on October 9, 2007
- It took 1,974 days for the Dow to make a new record high
- From the 2007 peak to March 9, 2009, the Dow fell 54% to 6,574
- IBM (IBM) has added 684 points to the Dow since Oct '07
- The Dow is price weighted. Each $1 move in the stock price of a component moves the Dow by 7.68 points (Note: this number changes depending on the price of stocks added or removed from the index)
- Alcoa (AA) has fallen 80% and taken 284 points over the same period
- Consumer Staples stocks have been the strongest sector since the old high. The Consumer Staple Select Sect SPDR (XLP) has gained 38%
- Investors who bought financials at the top have a long way to go before they see new highs. The Financial Sector SPDR ETF (XLF) is still down 50% since October 2007
- Purists argue that the Dow is only at record highs on a non-inflation adjusted ("nominal") basis
- Taking inflation into account the Dow needs to trade 11% higher to 15,840 before setting a new record
- In 2007 dollars, the Dow is trading at the equivalent of 12,840
- There are 30 stocks in the Dow, up from 12 when the index was created
- General Electric (GE) has been in the Dow since 1907
- The newest Dow component is UnitedHealth Group (UNH) which was added on September 24, 2012 to replace Kraft (KRFT)
- Apple (AAPL) was reportedly being considered for inclusion in the Dow instead of UNH
- Had Apple replaced Kraft, it's possible the Dow would be trading roughly 2,000 points lower due to $266 decline in Apple shares
- On November 1, 1999 Dow Jones & Co replaced 4 of the 30 companies in the index. Union Carbide, Chevron (CVX), Goodyear Tire (GT) and Sears (SHLD) were replaced by SBC Communications (now AT&T) Home Depot (HD), Intel (INTC) and Microsoft (MSFT)
- Of the four additions, only Home Depot is higher than where it was trading in November 1999. HD has gained 45%. The other 3 have lost an average of 42%.
NEW YORK: 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 ended the day at 14,253.77, nearly 90 points above the former closing high on October 9, 2007.
The broader index of the US markets, the S&P 500, also settled higher, but at 1,539.79 remained 1.6 percent below its all-time trading high.
It was a dramatic rebound that came even as the broader economy continues 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.
"It's been a good economy, accompanied by good earnings, coupled with very low interest rates. And no sign that it's over," said Hugh Johnson, chairman and chief investor officer at Hugh Johnson Advisers.
"And it's the only game in town," Johnson added, referring to the low returns on other investments.
The Dow, which weighs the stock prices of 30 top companies in a range of industries, and been a key gauge of health in US capital markets for 117 years, 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 coupled with low Federal Reserve interest rates 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.
"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.
Tuesday's surge came on the heels of rising equity markets in China and throughout Europe, said Chris Low, chief economist at FTN Financial.
The rally gained additional support mid-morning from a pickup in US services sector growth in February, according to the ISM purchasing manager survey.
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 two 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.
- AFP/fa
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