Dow Average Surpasses Previous Record High Set in 2007

The Last Time The Dow Was Here…

Tyler Durden on 03/05/2013 09:36 -0500

“Mission Accomplished” – With CNBC now lost for countdown-able targets (though 20,000 is so close), we leave it to none other than Jim Cramer to sum up where we stand (oh and the following list of remarkable then-and-now macro, micro, and market variables):  “we all know it’s going to end badly, but in the meantime we can make some money” – ZH translation: “just make sure to sell ahead of everyone else.”

  • Dow Jones Industrial Average: Then 14164.5; Now 14164.5
  • Regular Gas Price: Then $2.75; Now $3.73
  • GDP Growth: Then +2.5%; Now +1.6%
  • Americans Unemployed (in Labor Force): Then 6.7 million; Now 13.2 million
  • Americans On Food Stamps: Then 26.9 million; Now 47.69 million
  • Size of Fed’s Balance Sheet: Then $0.89 trillion; Now $3.01 trillion
  • US Debt as a Percentage of GDP: Then ~38%; Now 74.2%
  • US Deficit (LTM): Then $97 billion; Now $975.6 billion
  • Total US Debt Oustanding: Then $9.008 trillion; Now $16.43 trillion
  • US Household Debt: Then $13.5 trillion; Now 12.87 trillion
  • Labor Force Particpation Rate: Then 65.8%; Now 63.6%
  • Consumer Confidence: Then 99.5; Now 69.6
  • S&P Rating of the US: Then AAA; Now AA+
  • VIX: Then 17.5%; Now 14%
  • 10 Year Treasury Yield: Then 4.64%; Now 1.89%
  • EURUSD: Then 1.4145; Now 1.3050
  • Gold: Then $748; Now $1583
  • NYSE Average LTM Volume (per day): Then 1.3 billion shares; Now 545 million shares

March 5, 2013

Dow Average Surpasses Record High as Market Opens

By PETER EAVIS

Despite everything, the stock market is back at a record high.

The Dow Jones industrial average, which measures the performance of 30 blue-chip companies, rose more than 80 points at the start of trading on Tuesday, to 14,207.94. That surpasses its previous record close of 14,164.53, which it achieved nearly five and a half years ago, as well as its record intraday high, set around the same time, of 14,198.10.Of course, a few things have happened since October 2007. The housing market collapsed, the financial system went into meltdown, the European Union started to fray and politicians dragged the United States through an on-off-on-again fiscal imbroglio.

But stocks managed to shrug it all off.

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.”

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 a ways 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 American corporations, like Wal-Mart, Coca-Cola, General Electric and International Business Machines.

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. “Corporate earnings have been doing very nicely, thank you,” said Alan S. Blinder, professor of economics and public affairs at Princeton University. In aggregate, companies in the S.&P. 500 have not reported a decline in earnings since the third quarter of 2009.

The focus on profits explains why the stock market can be doing well while most people are not sensing a resurgent economy. A bet on an index like the Dow is effectively a narrow wager on the profits of 30 companies, not necessarily the economic health of average Americans, said Mr. Blinder. “Corporate profits have done better than median wages,” he said.

The big question is whether the stock market can keep going up from here.

One determinant is whether stocks are seen by traders as relatively expensive, and therefore vulnerable to a sell-off. Robert J. Shiller, a professor of economics at Yale University, has built a model for gauging whether stocks are cheap or pricey. Right now, stock valuations are above historical averages, but well below the stratospheric highs they’ve reached in bubbles, he said. According to his model, stocks are signaling that they can return about 3 to 4 percent a year.

“That’s not horrible,” he said, quickly adding that the stock market always has a mind of its own.

Its unpredictability may deter individual investors, although they have recently shown signs of coming back into the market. Given that stocks have risen and then disappointed for over a decade, skittishness is understandable.

The recent strong performance of the Dow Jones average also masks the woeful performance of some important companies. For instance, General Electric, held for generations in family portfolios, is down more than 40 percent from when the Dow last peaked in 2007. It may seem remarkable that Bank of America, grappling with a rat’s nest of issues, has risen by 200 percent from its 2009 low. But it is still nearly 80 percent below its high before the 2008 financial crisis.

Stock market analysts, of course, fret over what will happen when the Fed stops its stimulus.

Mr. Rosenberg, the economist, noted that the stock market has declined sharply on the two occasions since the crisis that the Fed signaled that it might temper its money printing. “In both cases, the Fed backtracked,” he said.

Still, the Fed’s easy money doesn’t look like it is going to dry up any time soon. The Fed has committed to maintaining a loose monetary policy until unemployment is well below current levels. And its policy makers will be all the more likely to take that stance if fiscal policy acts as a brake on the economy.

“How the Fed extricates itself is important,” said Mr. Bernstein, the money manager. “It could happen two, three, four, five years from now.”

In the meantime, he said, he remains confused about why more investors aren’t buying stocks. “I just don’t understand why people don’t want to play,” he said.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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