Cheers Are Few as Dow Jones Average Hits Milestone

The oldest and most popular gauge of the stock market on Tuesday surged past the nominal high it last reached more than five years ago, before the financial crisis hit with full force.

In the past, such a recovery would have led to celebrations on Wall Street and spread optimism about the economy. But the gain by the Dow Jones industrial average — the stocks of 30 American corporate giants like Coca-Cola, ExxonMobil and Microsoft — was a more downbeat event.

Wall Street executives were not dismissing the rally out of hand, but after several years of turbulence they were not cracking open the Champagne either.

“The market reflects an improving economy in the U.S. and abroad,” said James P. Gorman, the chief executive of the Wall Street firm Morgan Stanley. “It helps individuals through their 401(k)’s and other investments. That being said, it has been a very fast move, and prudent investors would be well served to tread carefully and look for improving economic evidence to support any moves to higher levels.”

It has taken nearly five and half years for the Dow to get this far. Now there are concerns about whether the forces that have driven the market rally — the huge stimulus actions by the Federal Reserve and banner corporate profits — will be sufficient to push it higher.

Ordinary investors, who have largely sat on the sidelines of the market, will be asking themselves whether it is time to start investing in stocks again, given the gains that have taken place.

“What’s amazing about this bull market is that people still don’t think it’s real,” said Richard Bernstein, chief executive of Richard Bernstein Advisors, a money management firm. “We think this could be the biggest bull market of our careers.”

The Dow broke through with a gain of 125.95 points, or 0.9 percent, closing at 14,253.77 on Tuesday. Since hitting a low in March 2009, with the panic of the financial crisis still fresh, the market measure has more than doubled.

The recovery is remarkable because the American housing market remains weak, Europe still has moments of severe instability, and fiscal battles drag on in Washington.

Using other yardsticks, however, the performance of the blue-chip Dow does not look quite as impressive.

The much broader Standard Poor’s 500-stock index, the benchmark favored by investment professionals, was slightly below its 2007 high even after it climbed 14.59 points on Tuesday, nearly 1 percent, to 1,539.79. And when adjusted for inflation, both the Dow and the S. P. 500 were well below their levels at the start of the last decade.

The Nasdaq composite index also surged Tuesday, rising 42.10 points, or 1.3 percent, to 3,224.13, but it remains well below its 2000 high, when it topped 5,000.

Previous highs occurred when investors believed the economy could keep growing without any extraordinary assistance. By contrast, this rally has occurred on the back of enormous monetary stimulus by the Fed and the world’s other central banks.

Since the end of 2007, five major central banks have injected some $6 trillion into the global economy, according to figures from the Bank for International Settlements. This was done to prevent bank runs and revive economies.

As the stimulus forced down interest rates, it eventually whetted investors’ appetite for riskier assets like stocks.

“Central banks do matter. Central banks have always mattered,” said David Rosenberg, chief economist at Gluskin Sheff Associates, who started work as a Wall Street economist on the day the stock market crashed in 1987.

The looming question is what will happen when the Fed stops its stimulus. Mr. Rosenberg said that after the crisis the stock market declined sharply on two occasions when the Fed signaled that it might temper its monetary easing.

“In both cases, the Fed backtracked,” he said.

Susanne Craig, Nathaniel Popper and Michael J. de la Merced contributed reporting.

This article has been revised to reflect the following correction:

Correction: March 5, 2013

An earlier version of this article referred incorrectly to the recent increase of investment in equity funds. The correct figure was $55.1 billion flowing into equity funds in January and February, not $77 billion in January.

Article source: http://www.nytimes.com/2013/03/06/business/daily-stock-market-activity.html?partner=rss&emc=rss