Stock traders work at the New York Stock Exchange. Investors say Tuesday’s record high has been driven in part by the improving U.S. economy, record corporate profits, and stimulus by the Federal Reserve.
ASSOCIATED PRESS Enlarge
NEW YORK — The Dow Jones industrial average leapt to a new high on Tuesday, surpassing levels reached more than five years ago, on indications of an improving U.S. economy.
The Dow rose 125.95 points to 14,253.77, an increase of 0.89 percent. The index jumped from the opening bell, climbed as much as 158 points early, and peaked at 14,286.
The Dow surpassed its record close of 14,164.53 from Oct. 9, 2007.
Tuesday’s record represents a remarkable comeback for the stock market. The Dow has more than doubled since falling to a low of 6,547 in March 9, 2009, after the financial crisis and the onset of the Great Recession.
Stocks have been helped by stimulus from the Federal Reserve and quarter after quarter of record corporate profits, even as the recovery has been slow and unemployment has remained high.
“It’s the perfect confluence of events,” said Jim Russell, an investment director at US Bank. “This will grab everybody’s attention, it will be a front page story, and it tends to draw people toward the market not push them away from it.”
The recovery in stocks may have been quicker had memories of the financial system’s near-collapse not been on investors’ minds, said Robert Pavlik, chief market strategist at Banyan Partners.
“It’s still pretty close to the front of people’s brains,” he said. “That’s one of the reasons that people are hesitant to invest in the stock market.”
However, more money has been flowing into stock mutual funds since the start of the year. Investors who have who stayed out of the market the last four years may be deciding to get off the sidelines, Mr. Pavlik said.
But local advisers say investors shouldn’t ascribe too much meaning to the historic mark.
“It’s purely psychological,” said Alan Lancz, president of Alan B. Lancz and Associates in Toledo. “The Dow Jones Industrial Average is only 30 companies. It’s not a really good bellwether for the market in general.”
While it attracts attention, financial planners say people need to continue using the same caution they always would when approaching investments.
Advisers also caution against looking at the market as a sign of how well the economy is truly doing. When the 2007 record was set, U.S. unemployment was under 5 percent. In January, it was almost 8 percent.
That has John Ross, a certified financial planner with Integrated Financial Resources in Sylvania, staying cautious and telling his clients to do the same. “We are setting an all-time high, [but] there’s not a lot of the fundamentals that are backing that,” he said. “It’s not like housing is roaring, it’s not like unemployment is falling. We’re saying be very careful.”
He said people are looking to get a decent return on their investment dollar. With interest rates on savings accounts and other low-risk investments remaining near zero, more people are seeing the stock market as a last-best resort.
“What happens is that you have people who are really looking for return, they’re looking for income, and they’re earning nothing in the bank, so they look at the market, and they take a chance going into riskier assets,” Mr. Ross said.
Mr. Lancz said his firm was projecting 10 to 12 percent gains for the market this year. Through the first two months, the Dow is up almost 9 percent.
The Dow industrials fell 34 percent in 2008 as the housing bubble burst and the government moved to save the U.S. banking system.
“Last time we were here, the economy was heading in a different direction. It was peaking and heading off a cliff,” said Art Hogan, market strategist at Lazard Capital Markets. “The good news is the market has put in a new high, and we’re actually at a better place than the last time we were at this level,” he added.
The S&P 500 index rose 14.59 points, or 1 percent, to 1,539.79 — 25 points from its all-time high in October, 2007. The Nasdaq composite climbed 42.10 points, or 1.3 percent, to 3,224.13.