The U.S. economy might still be on shaky ground, but Wall Street is flying high as of yesterday, March 5, 2013.
After more than five years of holding their breath, American investors exhaled strongly yesterday as the Dow Jones broke into record territory. The popular financial index closed at 14,253.77, breaking the previous record of 14,164.53 set back on October 9, 2007.
Other indices such as the S&P 500 are also close to breaking records. The March 5, 2013 close for the S&P 500 was 1,539.79, a figure only 25.36 short of the all- time S&P 500 record close reached back in October, 2007. The only often quoted stock index that is still far short of its record is the NASDAQ. Comprised of mostly smaller companies, the NASDAQ topped out at 5,048.62 back in March, 2000 and yesterday, it closed at 3,224.13, still significantly below its peak.
The Dow Jones includes an indexed average of 30 large companies in diverse industries and it is still the most widely quoted index and a measure by which many gauge corporate performance and the U.S. economy as a whole. When the Dow Jones is up, other stocks tend to follow suit and the overall investment outlook is usually optimistic.
Part of the reason for the surge in the Dow Jones Industrial Average is the simple fact that interest rates are at or close to historic lows. Corporate bonds, bank CDs, and other interest- bearing investments are paying yields so low, it makes little sense to waste time with them. Why purchase a corporate bond yielding 2 percent annual interest when you can purchase a big company stock with a dividend yield of 4 percent and the potential to appreciate significantly in value? This is exactly the thinking of many investors over the past few years and the infusion of money into stocks has helped contribute to yesterday’s record Dow Jones close.
Whether the performance of the Dow Jones spurs consumer confidence and spills over to the rest of the U.S. economy remains to be seen, but investors can still revel in the fact that the Dow Jones has finally recovered all of its losses and now stands on higher ground. It may prove to be short – lived, but after more than five years of waiting, an economic meltdown, a housing market crisis, and other negative economic data, it is nice to see that at least one segment of the U.S. economy is healthy once more.
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