Market hits record levels, finally settling above 2007 levels. Happy Days are here again! The better than expected Unemployment report for February boosted trading to yield a triple digit bump on the DOW index. With 236,000 jobs created in last month, the unemployment rate slips to 7.7%, making it the lowest rate since December 2008. February’s impressive turnout nearly doubled January’s total - making it the second best payroll growth in 12 months. Last month’s triumph may be second to November’s payroll growth - but it’s clearly a more significant milestone, given the political gridlock and sequestration anxiety.
There is no denying, the market is on fire. This begs the question: ”Does this mean we’re officially out of the woods with respect to our struggling economy?” Remarkably, of the trillions of dollars in investment capital that was either lost in declines or fled the market four years ago, it appears to have made its way back into the stock market. As for today, we have sufficiently surpassed the highs of 2007, but we’re looking at levels that belie the overall economic picture - particularly from the standpoint of government debt and anticipated spending cuts.
Market for 2013 is already yielding 10% growth, just in the first two months. We have seen 10% market growth for an entire year.
Is this a repeat of “irrational exuberance”? (a now famous phrase coined by former Federal Reserve Chairman Alan Greenspan). Perhaps you recall - not long after Greenspan warned that the overpriced tech stocks was caused by irrational exuberance, the Dot Com bubble burst. This historic occurrence resulted in massive losses that sent investors running for cover. Billions of dollars in losses, rendered many of Silicon Valley’s young millionaires nearly broke. The state of the country’s economy was significantly more stable at that time, thus the Dot Com bust was not nearly as devastating as it could have been. Since the US economy (as it stands today) is still in a rather delicate state, regardless of the zealous market – it wouldn’t easily recover without collateral damage, and a possible slip back into a recession.
The economic indicators are mixed, but there ARE clear signs of stabilization. For example, the manufacturing industry is showing signs of growth, the housing market is rebounding, and employers are finally feeling confident enough to hire. Nevertheless, the stock market is out pacing all indicators, and seemingly ignorant to political issues that threaten fiscal mayhem. Warren Buffet was quoted last week as saying “Markets are Stronger than Government”, and this has proven to be true. Hopefully, we’ve learned from our mistakes, and current market prices are based upon substantiated valuations. My optimism is tempered by reflection.
K. Reilly
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