How Is The Dow Surging To Record Highs?

Category: Markets / Finance / Mar 05, 2013 5:53PM EDT
The Dow Jones Industrial Average surged to a record on Tuesday, breaking through levels last seen in 2007 as investors poured money into blue-chip stocks in expectation of more gains amid signs of a strengthening U.S. economy. Signs of a strengthening U.S. economy, continued support from the Federal Reserve, and fairly attractive valuations compared to other assets have boosted the Dow by almost 9 percent so far this year. A strong reading in the U.S. services sector, which accounts for the bulk of economic activity, was the latest indicator of improving demand. Gains came across the board, with 10 of the Dow's 30 component stocks reaching new 52-week highs on a day when 456 securities hit new yearly highs on the New York Stock Exchange. The Dow Jones Transportation Average also closed at a new high after rising 1.5 percent. About 71 percent of the NYSE stocks closed higher while 67 percent of Nasdaq-listed shares ended in positive territory. About 6.41 billion shares changed hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, slightly below the daily average so far this year of about 6.48 billion shares. The blue-chip Dow's forward 12-month price-to-earnings ratio was at 15.87, compared with 16.99 during the 2007 highs, according to Thomson Reuters Datastream. The S&P 500's price-to-earnings ratio was at 13.5. Outside the Dow, Google continued its gains with the stock rising 2.1 percent to close at $838.60, an all-time high for the Web giant. Google is the highest-priced stock in the S&P 500. The Institute for Supply Management's services index showed growth accelerated in February to its fastest pace in more than a year. Markets have shrugged off the stalemate between the congressional Republicans and the White House over automatic U.S. government spending cuts, known as the "sequester." Other recent headwinds, including political turmoil in Europe, have also been navigated without much pain, with investors using any decline as an opportunity to buy. "The economy is still expanding and improving despite the risk of higher taxes and lower spending," McDonald said. "While you can never rule out a correction, we don't see the economy or the Fed getting in the way of the market." Among Dow stocks hitting all-time highs on Tuesday were Walt Disney Co and 3M Co. All 10 of the S&P 500's industrial sector indexes rose, with tech shares among the day's gainers. Just two components ended lower - Coca-Cola and Merck & Co, while Alcoa Inc ended flat. Shortly after the opening bell, the Dow rose above 14,198.10, the intraday all-time high reached in October 2007, when the world was heading toward the financial crisis. The Dow's previous closing high was set on October 9, 2007, when it ended at 14,164.53. The broad benchmark S&P 500 is at a five-year high and about 2.3 percent away from its all-time intraday high of 1,576.09. "The Dow is at a new record and one of the main reasons is because so many of the concerns and the worries that we've had in the last few years, well things could have gone one way or the other, and in almost every case, they went the right way. The Euro-zone debt crisis, we had the European Central Bank step in to really resolve some of those issues by committing to the euro as Mario Draghi said, 'whatever it takes'. Japan emerging from a two decade economic slumber is now breaking out and it's probably the most dynamic market in the world on the upside. China, which had a transfer of leadership and also what we feared would be an economic hard landing has found a way to sort of swoop out of that and resume their upward trend. And here in the U.S. we've had a very strong economic recovery in housing and in the consumer. And some of the concerns we had over the fiscal cliff and the election and now of course the sequestration have proved to be muted or tame when contrasted with the potential and the upside in the equities market," said Douglas Blake, Senior Wealth Manager at Newbridge Securities Corporation. The latest sign of an improving economy was data showing the pace of growth in the vast U.S. services sector accelerated to its fastest pace in a year in February. So why aren't most U.S. households feeling the economic lift of the stock market? "There really are two different forces at play here. The economy, if you ask the typical Main Street American is probably not going gangbusters - certainly doesn't feel like your personal economy is at an all time high. You have potentially higher taxes, unemployment is still at 7.9 percent, way above where it was back in 2007, the last time we were at these levels. And you kind of look and say, 'Well, if things are so great on Wall Street, why are things not so great on Main Street?' I think one of the answers is that the U.S. market is a forward looking indicator. We're kind of pointing the direction for where we hope and where we anticipate that the U.S. economy will eventually be. So you can be encouraged that we're starting to break out and that could mean down the road that the U.S. economy will start bearing some of the fruit of this upside in the future," added Blake. Shortly after the opening bell, the Dow rose above 14,198.10, the intraday all-time high reached in October 2007, when the world was heading toward the financial crisis. Tech stocks jumped, pushing the Nasdaq up more than 1 percent. Qualcomm Inc was one of the biggest gainers, with shares up 2.3 percent at $68.15 (USD) after the world's leading supplier of chips for cellphones said it was raising its quarterly cash dividend by 40 percent. United Technologies Corp was the biggest gainer on the Dow index, up 2.3 percent at $91.18, followed by Bank of America, up 1.8 percent at $11.61. The Dow Jones Industrial Average shot up 125.95 points, or 0.89 percent, to 14,253.77 at the close. The Standard & Poor's 500 Index gained 14.59 points, or 0.96 percent, to 1,539.79. The Nasdaq Composite Index climbed 42.10 points, or 1.32 percent, to 3,224.13. (Video Source: REUTERS)