NEW YORK (AP) — The stock market is back.
Five and a half years after the start of a frightening drop — which erased $11 trillion from nest eggs and made many investors despair of ever getting their money back — the Dow Jones industrial average has regained all the losses it suffered in the Great Recession and reached a new high: It rose 125.95 points Tuesday, closing at 14,253.77. That topped the all-time record of 14,164.53 set on Oct. 9, 2007.
“It signals that things are getting back to normal,” said Nicolas Colas, chief market strategist at BNY ConvergEx, a brokerage. “Unemployment is too high, economic growth too sluggish. But stocks are anticipating improvement.”
The record suggests that investors who did not panic and sell off their stocks in the 2008-09 financial crisis have fully recovered. Those who have reinvested dividends or added to their holdings have done even better. Since bottoming at 6,547.05 on March 9, 2009, the Dow has risen 7,706.72 points or 118 percent.
The Dow record does not include the effect of inflation. Adjusted for that, the Dow would have to reach 15,502 to match its old record.
The Dow, though the most famous market gauge, is a somewhat narrow one. A broader index, the Standard and Poor's 500, closed Tuesday at 1,539.79 — still 25.36 points below its record.
At the time of the Dow's previous record, unemployment was just 4.7 percent. It's a stubborn 7.9 percent today, a reminder that stock gains aren't a magic elixir for the economy.
Still, the Dow milestone was another sign that the nation is slowly healing after the worst recession since the 1930s, that it has endured the collapse of the housing market, a crisis in the financial system, the fraying of the European Union and being dragged by politicians through an on-off-on-again federal budget cage match.
Stocks have managed to move beyond all that, stunning even seasoned market watchers.
“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.
Car sales are at a five-year high, home prices are rising again and U.S. companies continue to report big profits.
The stock gains have helped many Americans' retirement and brokerage accounts recover. That, in turn, has helped push U.S. household wealth nearly back to its peak before the recession, although many in the middle class are still deep in the hole. Most middle class wealth is tied up in home values, which are still one-third below their peak.
Good economic news helped lift stocks to the record Tuesday. Retail sales in the 17 European countries that use the euro rose faster than expected. China's government said it would support ambitious growth targets. And a report found that U.S. service companies grew last month at their fastest pace in a year.
Four years ago, few investors would have predicted such a fast recovery. Some feared another Great Depression. Banks were collapsing, lending was frozen, world trade was plunging, and stocks were in free fall.
“People thought we were going to relive the 1930s,” said Robert Buckland, chief global stock strategist at Citigroup.
From its peak in October 2007 to its bottom in March 2009, the Dow fell 54 percent — not quite the 90 percent drop of the Great Depression, but still scary.
Non-panickers did well.
Take Jay Sachs, for instance, a 70-year-old retired computer consultant. As others scrambled to get out of stocks in late 2008, he plunged in more — scooping up shares of drug maker Ely Lilly and Co., health products giant Johnson & Johnson and food company General Mills.
“You have to be greedy when others are fearful,” Sachs said, quoting Omaha billionaire Warren Buffett, who also bought during the panic.
“People are still fearful, and that's a good sign. There's room for growth,” said Sachs, who said his portfolio doubled in value in four years.
As stock rebounds go, this one has been an unusually quiet and uncelebrated one. Typically bull markets are accompanied by rising trading volume, a surge in young companies going public and Internet chatter about hot stocks. Not much of that in the past four years.
Adding to the hesitant mood is lingering fear among many investors that stock gains can disappear in a flash. Burned by two stock market crashes in less than a decade, Americans have sold more U.S. stocks than they've bought the past four years. That's nearly unprecedented in a bull market since World War II.
In this bull run, nearly all the buying has come from companies repurchasing their own stock in an effort to boost their value. Companies in the S&P 500 have bought $1.5 trillion worth since December 2007.
Some investors dismiss Dow records as unimportant because the index has just 30 stocks. Many prefer to follow the S&P 500, which, as the name implies, tracks 500 companies. Yet the two have been closely parallel over the years, and the Dow is a good measure of how big companies are doing.
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.
Tuesday's record was a victory of sorts for Federal Reserve Chairman Ben Bernanke. On his watch, the Fed launched an unprecedented campaign to lift stocks by making their chief rival for investor money — bonds — less attractive.
Under a program called “quantitative easing,” the Fed bought trillions of dollars of bonds to drive their yields down and drive investors back into stocks. That, so the thinking went, would push up stocks, make people feel wealthier and more willing to spend, and thus help the economy.
The biggest winners in this bull market have been the rich: 80 percent of all stocks are held by the wealthiest 10 percent of households.
This report includes material from the New York Times.
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