Regional stocks mostly up as Dow trades at all-time high
03/05/2013 12:17 PM
05/16/2014 9:22 PM
The Dow Jones industrial average is trading at an all-time high.
The index surged past its previous record set in October 2007, gaining 145 points to stand at 14,273 near midday Tuesday. That’s a gain of 1 percent.
The index is now up nearly 9 percent for the year, capping a remarkable comeback since the depths of the financial crisis. Tuesday’s gains were driven by industrial and technology stocks. IBM, United Technologies and 3M led the Dow higher.
The Standard & Poor’s 500 index rose 16 points, also 1 percent, to 1,541. The S&P is also within striking distance of its record close of 1,565. The Nasdaq composite gained 43 points, or 1.4 percent, to 3,225.
Regional stocks were mostly higher in late morning trading. Among the leaders were Kansas City Southern, up $1.97; Cerner, up $1.84; and Waddell & Reed, up 72 cents. Sprint, the region’s largest public company, was up 3 cents this morning.
A handful or regional shares were down, including Garmin, down 25 cents, and H&R Block, off 35 cents.
Since a low point in March 2009, the Dow Jones index has more than doubled, stunning even the most seasoned stock market watchers.
“What’s amazing about this bull market is that people still don’t think it’s real,” said Richard Bernstein, chief executive of Richard Bernstein Advisors, a money management firm. “We think this could be the biggest bull market of our careers.”
On Tuesday in particular, leading indexes abroad were rising after the Chinese government announced that it would step up spending and European data showed that retail sales there have been stronger than expected.
After the bell sounded at the New York Stock Exchange, stocks were pushed up more on a reading on the service sector in the United States showed that it had risen to its highest level of activity in a year, surprising analysts.
“Given that the service sector accounts for close to 85 percent of the U.S. economy, the strong performance on this index suggests that the overall recovery may be continuing to build on the positive momentum at the end of the year,” said Millan Mulraine, a senior strategist at TD Securities.
There are some important caveats, however. The Dow is a rather narrow measure of the stock market, so it can provide a somewhat distorted picture of the market’s performance.
At 1,535.31 points in Tuesday morning trading, the much broader Standard & Poor’s 500-stock index is still off its nominal high of 1,565.15 points, also set in October 2007. After taking inflation into account, both indexes are down from their earlier highs in 2000. And, on an inflation-adjusted basis, the S&P 500 is down even after factoring in returns from dividend payments.
Still, despite its flaws, the Dow Jones average is the recognizable face of the stock market to many Americans, and it contains some of the best-known U.S. corporations, like Wal-Mart, Coca-Cola, General Electric and IBM.
The stock prices of some of the companies in the index have more than doubled since that low point in 2009. For instance, American Express is up more than 400 percent. After the crash of 1929, it took 25 years for the Dow to get back to the nominal level it plunged from. The severe economic contractions of the 1930s, during which scores of banks collapsed, weighed heavily on stocks.
But one essential government institution did things differently after the 2009 low point, and that has bolstered the stock market. The Federal Reserve has added more than $3 trillion of monetary stimulus to the economy and more than $1 trillion of bailout loans to financial firms since the 2008 financial crisis. This was done to prevent a widespread banking crash and help the wider economy.
Perhaps as important is the psychological shot in the arm: When investors believe the Fed is providing a systemic backstop, they will be more likely to get back into the market, and stay there.
“The Federal Reserve is here, and is going to do everything possible to support this recovery,” Ben S. Bernanke, chairman of the Fed, said in an interview with “60 Minutes” in March 2009. It is probably more than coincidence that stocks began to recover strongly after that broadcast.
“Central banks do matter. Central banks have always mattered,” said David Rosenberg, a chief economist at Gluskin Sheff and Associates, who started work as a Wall Street economist on the day of the 1987 stock market crash. “So long as the Fed is in an accommodative mode and the economy is out of recession, the odds are that you will have a bull market.”
That’s not to say that the Fed’s largess is the only reason stocks are up. Company profits, which theoretically provide the basis for investing in stocks, have also surged.