Dow surges to record … and keeps going

By Steve Rothwell, Associated Press

Published Tuesday, March 5, 2013 | 9:29 a.m.

Updated Tuesday, March 5, 2013 | 3:04 p.m.

NEW YORK — The Dow closed at an all-time high Tuesday, beating the previous record it set in October 2007, before the financial crisis and Great Recession.

The Dow Jones industrial average 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's close surpassed its previous 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, following 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 economic 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 even 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."

That could be changing. More money has been flowing into stock mutual funds since the beginning of the year.

Investors who have who stayed out of the market the past four years may be deciding to get off the sidelines, Pavlik said.

The Dow opened higher Tuesday following a surge in markets around 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 countries that use the euro. In the U.S., more hopeful news about housing kept the momentum going.

Even with stocks trading at, or close to, record levels, they are still a good investment because earnings have risen so much, said Darell Krasnoff, Managing Director at Bel Air investment Advisors.

"People get overly focused on benchmarks," he said. "The fact that it's reached that level is an interesting landmark, but it doesn't say anything about whether the market is over-, or under-valued."

Stocks are also attractive compared with bonds after a five-year rally in the debt market that pushed yields to record lows.

The yield on the 10-year Treasury note, at 1.90 percent, is lower than the dividend yield of about 2.1 percent on the S&P 500, which measures the ratio of annual dividend payments to stock prices.

Despite the rise in the Dow, the U.S. economy has not fared as well. Unemployment was just 4.7 percent when the Dow last reached a record five and half years ago, versus 7.9 percent today.

But the economy is strengthening in many areas. Housing and auto sales are rising, home prices are recovering, and companies are hiring more. That has helped drive a 9 percent rise in the Dow this year, impressing even skeptics. For all of last year, the index rose 7 percent.

Stocks are also benefiting from the economic stimulus from the Federal Reserve and other global central banks.

Under a program called "quantitative easing," the Fed has bought trillions of dollars of bonds, pushing up their prices and sending their yields lower. That makes stocks more attractive to investors than bonds and keeps interest rates low throughout the economy, encouraging investment and spending.

The U.S. central bank began buying bonds in January 2009 and is still purchasing $85 billion each month in Treasury bonds and mortgage-backed securities.

The Dow has even managed to climb to a record despite the backdrop of political wrangling in Washington. Automatic government budget cuts took effect Friday after President Barack Obama and Congress failed to reach a budget deal. Economists expect the cuts to hurt U.S. economic growth.

The Dow's gains Tuesday were led by industrial and technology stocks. Cisco System rose 48 cents, or 2.3 percent, to $21.22 and United Technologies climbed $1.89, or 2.2 percent, to $91.02.

More stable, conservative stocks like utilities and consumer staples logged smaller gains.

From its March 2009 low to today, the Dow's gain has been led by: American Express, up almost 500 percent from $10.64 to $64.12. Home Depot has jumped almost 300 percent from $18.23 to $70.47.

Hewlett-Packard is the only stock in the index that is lower than it was four years ago, falling 22 percent from $25.53 to $20.37.

On Tuesday, investors received another piece of positive news on the U.S. economy, a report that U.S. service companies grew in February at the fastest pace in a year, thanks to higher sales and more orders. The gain suggests higher taxes have yet to slow consumer spending on services.

Home builder PulteGroup rose 50 cents, or 2.5 percent, to $20.22 following news that home prices rose at the fastest pace in almost six years in January, a sign that the housing market is gaining momentum as it nears the spring selling season. Home prices rose 9.7 percent in January from a year ago and had the biggest gain since April 2006, according to data released by CoreLogic.

In the five years ending in 2012, investors pulled a net $545 billion from U.S. stock mutual funds, according to data from Investment Company Institute. During the same period, they poured a total of $1 trillion into bond mutual funds.

In January, ICI estimates that investors put a net $18.6 billion into stock funds.

On Tuesday, the Standard & Poor's 500 index rose 15 points, or 1 percent, to 1,539.79. The index is 25 points, or 1.6 percent, from its own record close of 1,565. The Nasdaq composite gained 42 points, or 1.3 percent, to 3,224.13.

The yield on the 10-year Treasury note rose two basis points to 1.90 percent. Gold rose $2.50, or 0.2 percent, to $1,574.90 an ounce and the price of oil climbed 70 cents, or 0.8 percent, to $90.82 a barrel.