Thread: Dow 13,000: What got it there?

February 21, 2012 11:30 AM PrintText

Dow 13,000: What got it there?

ByJill Schlesinger
(CBS)

(MoneyWatch) For the first time since May, 2008, the Dow Jones Industrial Average traded above the psychological milestone of 13,000.

Yes, 13,000 is just a number, but every time we reach a milestone, it helps investors shed a little bit more of their post-financial crisis stress disorder.

Given that the Dow was touched a 52-week low of 10,404 last October, the recent move is substantial. US stocks have gained over 22 percent since those precarious lows and the blue chip index is only 8.5 percent away from the all-time closing high of 14,164.53, reached on October 9, 2007. As MoneyWatch blogger Allan Roth reports, the market is a hair away from crossing a more significant, but less noticed, milestone: If you look at the entire market, rather than just the 30 stocks in the Dow, U.S. stocks have recovered within one percent of their all-time high, reached on Oct. 9, 2007.

Stocks just below all-time high

The inevitable question is why have stocks have done so well? The answer is three-fold: (1) Greece/Europe didn't collapse, (2) the economic data in the U.S. has improved and (3) central banks across the world have turned on the spigots to make money abundant.

1. Back in October, there was a real fear that the European Union was falling apart at the seams. The Lehman Brothers analogies with Greece were flying and talks about skyrocketing borrowing costs for Spain and Italy were real. Progress started after the European Central Bank created a mechanism in December called the "Long Term Refinancing Operation," (LTRO) to lend money to European Banks at one percent. The banks in turn took that money and lent it to weak European economies, which prevented a run on those countries' sovereign debt.

2. The U.S. economy has seen improvement across the board since October. The best progress has been in jobs, where there has been steady progress. In January, there 243,000 new jobs and the unemployment rate dropped to 8.3 percent, the lowest it's been since February 2009. There has also been improvement in manufacturing and even in the beleaguered housing market there are some tiny glimmers of activity.

3. Easy money: Not only has the ECB opened the spigots, but the Federal Reserve has said it would keep its benchmark rate at 0-0-.25 percent until 2014 and the People's Bank of China has now taken its foot off the break and eased reserve requirements. With global central banks following a highly accommodative monetary policy, investors are more inclined to move into risk assets, like stocks.

Before we get too carried away, the problems in Greece are not over. I would wager a tidy sum that we'll be hearing about a third Greek bailout in the not-too-distant future. Meanwhile, oil prices are on the rise, which might keep a lid on economic progress and corporate profits, as consumers shell out more at the pumps and less at their favorite retailers.

Still, I know you want to enjoy the moment, so Happy 13,000!

Dow Breaches 13K Threshold for First Time Since 2008 | Fox Business

The inevitable question is why have stocks have done so well? The answer is three-fold: (1) Greece/Europe didn't collapse, (2) the economic data in the U.S. has improved and (3) central banks across the world have turned on the spigots to make money abundant.

Well, not to be too pessismistic, but:

1. Greece/EU have not collapsed yet. Bad foundation. Greece is not likely to keep Germany and the rest of the EU happy, so another bailout is unlikely and a Greek default more than likely. Not if, just when. And then there is Italy, Portugal, Spain, and Ireland. Sarkozy will probably be defeated in France, and no one will be able to persuade the Germans to fill the trough again.

2. The so-called improving economic data in the US is not valid. Gallop reports today that unemployment for February will be around 9%, up from January's 8.3%. Looks like the wrong direction to me. Moreover, the way the feds cook the unemployment books, even 9% is a gross underestimate. And we are still minus millions of jobs when compared to 2007. Also, GM's record profits do not exist if the US taxpayers were repaid the additional 22 Billion dollars we paid to bail the UAW, oops, excuse me, GM out. And our national deficit will grow by another 1.5 Trillion dollars. So what is looking so rosy?

3. Ah, but central banks across the world have turned on the cash spigots. That includes the US Federal Reserve. And remember, the Fed does not really have a cash spigot per se. It's spigot is a printing press. And that foretells inflation, which until now has been artificially suppressed. Moreover, the Fed's policy has been oriented to artificially low interest rates (during the Carter administration when we had a similar major recession, interest rates soared above 20% for a home loan;in 1981 14% was still the going rate). The lower interest rates are investor friendly, ergo stock market surges that are more related to Fed interest policy than to probable or actual improvements in the US or world economy.

4. So, if you must celebrate, don't celebrate an apparent but nonexistent improvement in the US economy. Instead, celebrate Mardi Gras. Happy Fat Tuesday.

RELATED

http://www.alipac.us/f19/eurozone-ap...greece-251269/

It is an election year.

Dow up nearly 100% from bear market lows of March 2009

By Adam Shell, USA TODAYUpdated 10m ago

NEW YORK – The Dow Jones industrial average broke through the 13,000 barrier for the first time since May 2008 in early trading Tuesday, extending its gains since the bear market low to nearly 100%.

Crossing the big round number is likely to provide a jolt of confidence to investors, who have been in fear mode for years following the worst financial crisis since the Great Depression. It is the latest sign that financial markets are stabilizing.

"Dow 13,000 is telling us that the fears, and all the financial Armageddon stories, might have been overdone," says James Paulsen, chief investment strategist at Wells Capital Management.

STORY: Stocks up, Dow goes above 13,000 briefly
STORY: New smartphone app makes it easier to shop for stocks
If fears continue to lift and confidence levels keep building, investors could return to their risk-taking ways and start investing more aggressively again, adds Paulsen.

A rising Dow "could give individual investors the animal spirits to act," Paulsen adds.

The Dow, the best-known and most closely followed stock barometer in the USA, has now nearly doubled since hitting rock bottom on March 9, 2009, in what was the worst bear market since the 1930s. It is up nearly 99% since its low.

The Dow finally crossed 13,000 around 11:24 a.m. ET, causing a cheer to rise from the floor of the New York Stock Exchange near Wall Street. In afternoon trading ,the Dow was still up but dipped back below 13,000.

The Dow last closed above the key psychological 13,000 level on May 19, 2008, when it finished at 13,028.16.

The stock market has been helped by better news out of Europe. Early Tuesday, Greece and euro zone leaders agreed on a bailout loan of 130 billion euros, removing the threat of a Greek default, financial chaos in Europe and potential contagion around the world.

How the Dow has performed
Dow Jones industrial average, 5 years.
Stocks have also been benefiting from an ongoing economic recovery, historically low interest rates and stocks trading at below-average price levels vs. corporate earnings.

On a more sober note, the blue-chip measure of 30 stocks first closed above 13,000 on April 25, 2007. That means the Dow has gone virtually nowhere over the past four years.

The significance of the Dow rebounding so far in such a short period of time is now being debated on Wall Street.

Richard Moroney, editor of Dow Theory Forecasts newsletter, says the Dow's climb is no doubt a psychological positive. But he says a more powerful number will be when the Dow closes above its old high of 14,164.53 it celebrated on Oct. 9, 2007.

"Dow 13,000 doesn't have the impact of a new all-time high," says Moroney.

Moroney would also like to see other key stock indexes hit new highs as well, which would better confirm that the uptrend remains in place. For example, Moroney said it would be a better sign if the Dow Transportation average, which is filled with trucking, railroad and aviation companies that move goods and services across the globe, would also take out its old high of 5618.25 that it hit on July 7, 2011. But the index was trading at 5182 Tuesday, or roughly 8% below its 2011 high.

Still, the broader Standard & Poor's 500-stock index climbed to a new bull market high Tuesday, surpassing its April 29, 2011, high of 1363.61, another good sign that market breadth is strong.

Investors now must wrestle with the question: Is it too late to get in? Or is this the start of a second leg up for stocks?

A rising Dow, says Paulsen, could change the dialogue from, "I don't want to own stocks because I want to sleep at night," to, "Am I missing out on gains?" says Paulsen.

A surge in oil prices could cause the Dow's advance to slow. A barrel of oil was fetching nearly $105 a barrel in Tuesday trading.

Dow up nearly 100% from bear market lows of March 2009

RELATED

http://www.alipac.us/f19/home-depot-...-000-a-251334/