Happy days are here again, at least for some investors, as the Dow Jones industrial average closed at a record high Tuesday.
The Dow beat its previous high set in October 2007 before the recession and housing-market collapse, closing at 14,253.77.
The index has jumped more than 2 percent in five days, including Tuesday’s nearly 1 percent increase, despite an economy that few would label rosy.
Investors apparently are not discouraged by federal budget cuts from the sequestration or the fiscal cliff deal, which raised federal taxes and cut spending, said Robert Norton, 47, of Hammonton, who owns Norton Wealth Management.
“It’s kind of going up in spite of everything that’s happening in Washington,” Norton said. “That flies in the face of conventional wisdom. But people are looking for alternatives with interest rates as low as they are. You’re not getting a good return on bonds.”
The Dow opened higher Tuesday following a surge in markets across the globe. China’s markets rose after the government said it would support ambitious growth targets. European markets jumped following a surprisingly strong rise in retail sales across the 17-country group that uses the euro.
The Dow Jones industrial average measures the performance of 30 large American companies, including General Electric, Wal-Mart, Procter & Gamble, McDonald’s, Pfizer and Verizon. Investors rely on this and other indices, such as the S&P 500, to determine how well the stock market is faring.
From its peak on Oct. 9, 2007, when it closed at 14,164.53, to its bottom in March 2009, the Dow fell 54 percent. That was far less than the nearly 90 percent drop during the Great Depression, but significant nonetheless. There had been 11 previous bear markets since World War II and none had reached 50 percent.
The S&P 500 index rose 15 points, or 1 percent, to 1,539.79, within striking distance of its own record close of 1,565. The Nasdaq composite index gained 42 points, or a little more than 1 percent, to 3,224.13.
“People who stayed the course have done a lot better,” Norton said. “Unfortunately, a lot of individual investors jumped out in 2008 because things were so scary. A lot waited to put their toes back in the water. That means they missed that entire rebound up until now. One of the keys (to good investing) is perseverance.”
The yield on the 10-year Treasury note, currently at 1.90 percent, is still lower than the yield of about 2.1 percent on the S&P 500 index, which measures the ratio of dividend payments to stock prices.
Unemployment was just 4.7 percent when the Dow last reached a record five-and-a-half years ago, versus 7.9 percent today. Unemployment is higher in New Jersey, 9.6 percent, and higher still in South Jersey, where it hovers in the double digits in Cumberland and Cape May counties.
“The economics of the country are horrible. We saw growth of just a tenth of a percent in the past quarter with high unemployment,” said Doug Dign, 65, of Lower Township, a financial planner with FP Concepts in Lower Township.
He said the Fed’s purchase of bonds is responsible for the recent surge in the market by propping up bond prices and driving down yields.
“The Fed is continuing to print money under quantitative easing,” he said. “This is driving more people to the stock market because CD rates are ridiculously low.”
Dign said many of his investors, particularly retirement-age investors, are reluctantly reinvesting in the market after suffering steep losses during the recession.
“Many of these people are seniors, and they’re scared when they see their 401(k) reduced by 40 percent,” he said. “If you have your money positioned in a way that you lose one night’s sleep over it, you have it in the wrong place.”
Still, Dign said, record-breaking days such as Tuesday will attract more investors.
“Anyone who lost money from 2009 is more than ahead now if you rode out the wave. And I’ve seen many waves in my career,” he said. “Any good news is good. We are seeing rough times but we’ll come back. If people believe that, it will come back faster.”
A robust stock market could help other parts of the U.S. economy, such as the housing market, said Thomas Cakert, 65, of Ventnor, a financial planner with T.C. Financial Management Co.
“They don’t move in tandem step, but they do affect each other,” he said. “If you’re doing better in the stock market, people feel better about themselves and spend more. It’s all about a functioning economy in the end.”
Cakert said he counsels his investors to pay less attention to the day-to-day volatility of the market than their long-term investment strategy.
“We’re long-term investors. We have a plan, and we stick to the plan. What happens daily in the market is not terribly important to us,” he said.
The Associated Press contributed to this report.
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