The Dow Jones just wrapped up its strongest January in 19 years, climbing 5.8% in just 21 trading days. Last Friday, the Dow closed above the 14,000 mark for the first time since the financial crisis of 2008 sent the stock market in a (seemingly) never-ending downward spiral. And this could be the week that the Dow Jones reaches a new all-time, bypassing the October 2007 benchmark of 14,164.53.
Heady numbers, indeed. But are the Dow’s latest gains – and promises for a new all-time high – a sign of a continuing financial recovery, or are they simply an emotionally-buoyed milestone?
Despite the Dow Jones’ recent ascent, which began in earnest after the November elections and only slowed briefly during the peak of the so-called “Fiscal Cliff” negotiations, the economy has been giving out mixed signals.
In the last week alone, we’ve seen reports that fourth quarter GDP slowed to finish out 2012. The contraction was small – just 0.1% between October and December – and was largely driven by a drop in government spending ahead of the cliff, including a 22.5% drop in military spending. Consumer spending, on the other hand, was actually up during that period, as was investment spending on things like housing.
And on Friday, the Dow’s nearly 150-point gain was fueled by a rise in the nation’s unemployment rate for January. The jobless rate climbed from 7.8% in December to 7.9% for the first month of 2013, and has now been above the 7% mark for a whopping 50 months. More than 12 million Americans are still out of work: the majority of them are considered “long-term” unemployed, having been without a job for more than 26 weeks. Yet, most investor saw these tepid numbers as a sign of economic stabilization, and sent stocks soaring.
When We Reach the Mountaintop
At this point – barring any sort of catastrophe – it’s less a matter of “if” and more a matter of “when” the Dow Jones reaches that new all-time high. My question is, what do you make of it?
Do you think the march toward new records in the stock market is a sign of true economic progress, legitimate signs of financial recovery?
Or, do you think it’s a purely emotional milestone? Does it have less to do with actually improving markets and more to do with government involvement and a desire on the part of consumers to just want things to finally, finally be back to normal?
Personally, just like the mixed signals coming from Wall Street, I have mixed feelings when it comes to this inevitable all-time high. Do I think it’s a good thing? Yes. But I also have a sneaky suspicion that there may be more hype than substance to the Dow Jones’ rapid growth.
What do you think about the Dow Jones’ march toward history? What’s really behind it?