Added by Erik West on March 5, 2013
The Dow Jones Industrial Average, the most closely watched US benchmark stock market index, closed at a new record on Tuesday – the highest all-time closing and highest since October 2007, when the previous record was set.
The influential stock market index closed at 14,253.77, up 125 points on Tuesday, surpassing the previous record of 14, 164.53 set over five years ago. The index took 25 years to recover after the 1929 crash.
The Dow Jones Industrial Average is affected by events around the world. Traders say the Dow’s new record is likely influenced by US service sector activity exceeding expectations, an announcement that European retail sales are stronger than expected, and the Chinese government’s announcement of an increase in spending.
Some analysts say today’s close builds on the positive momentum that started at the end of 2012, yet other analysts are more cautious, stating that the index offers a narrow view of stock market activity.
Stocks in the Dow Jones Industrial Average index include American Express, which has increased by a factor of four since 2009, skewing the index upwards.
Analysts say the Federal Reserve monthly purchase of US$85 billion in mortgage backed securities is the more likely source of bull market. The Federal Reserve since 2009 has pumped over $3 trillion into mortgage backed securities, kept its benchmark lending rate at effectively zero percent, and has provided more than US$1 trillion in bailout loans to help the wider economy and prevent a widespread banking crash as a result of the global financial crisis of 2008-2009.
In addition, say analysts, the index is influenced by company profits which continue to climb with little effect on average American wages, prompting individual investors to shy away from the stock markets.
Institutional investors say the Dow’s surge is good news yet are cautious since many say the relatively high prices of many stocks could lead to a broader sell-off when investors take profits. Sell-offs have a cascading effect, causing increasing numbers of investors to sell their holdings as key indices like the Dow decline as a result of the activity.
Other influential indices did not follow the Dow – the Euro Stoxx 50, a key euro zone blue chip index, closed at 2,683.02 points on Tuesday – down almost 2,800 points off its March 2000 record high of 5,464.43 points. The London FTSE 100 closed at 6,431.95, almost 500 points below its December 1999 record of 6,930.20 points.
The Dow Jones Industrial Index is comprised of 30 of America’s largest companies that include 3M, AT&T, General Electric, Microsoft, Wal-Mart, The Home Depot, and McDonald’s.
The global economic crisis of 2008-2009 has since transformed into the 2008-2012 global recession which contributed to the European sovereign-debt crisis.