The Dow Jones Industrial Average reached 14,253.77, a record high, going past the 14,198.1 it reached back in 2007, before the financial collapse. Does this mean the stock market, at least is fully recovered, and that the financial collapse can be declared officially over? Well, not necessarily.
America, birthplace of the credit crisis that erased $37 trillion from global equity values, is leading the world’s stock markets back.
The Dow Jones Industrial Average (INDU) rallied 126 points to 14,253.77 yesterday, joining Denmark’s OMX Copenhagen 20 Index among major stock gauges in the 45 largest markets to regain all-time highs, according to data compiled by Bloomberg. Four years after bottoming, equity benchmarks in those countries are an average of 27 percent below their peaks, the data show.
About $10 trillion has been restored to U.S. equities, fueled by the fastest profit growth since the 1990s and monetary stimulus from the Federal Reserve. Retailers, banks and manufacturers led the recovery from the worst bear market since the 1930s as the Dow took less than 65 months to rise above its previous high set on Oct. 9, 2007, more than a year faster than the recovery from the Internet bubble.
“The U.S. has been ahead of other countries in terms of its ability to outperform since the crisis,” Jason Benowitz, who helps manage $4.5 billion at Roosevelt Investment Group Inc. in New York, said by phone yesterday. “The potential was there because it started here. It wouldn’t have been possible without the regulatory intervention.”
While the Standard & Poor’s 500 Index remains 1.6 percent from its 2007 high, American gauges including the Dow Jones Transportation Average, the Russell 2000 Index of smaller stocks and the S&P Midcap 400 Index have reached records. By contrast, the U.K.’s FTSE 100 Index has almost 8 percent to rise before regaining an all-time peak, while China’s Shanghai Composite Index must more than double.
The 116-year-old Dow jumped 0.9 percent yesterday, climbing above the 14,164.53 record closing level it reached before the global financial crisis and eclipsing its intraday high of 14,198.1 from Oct. 11, 2007. The gauge plunged 34 percent in 2008 for the worst performance in 77 years as the housing bubble burst and the financial system required a government bailout.
While the Dow has more than doubled in the four years since its bear-market low, its valuation remains 19 percent less than the price-earnings ratio at the previous peak and 14 percent below its 20-year average. Bulls say that’s a signal stocks have room to keep rallying, while to bears it shows a lack of confidence in earnings growth and concern over the Fed’s ability to continue spurring the economy.