The Dow Jones Industrial Average closed above 15000 for the first time Tuesday as stocks continue a historic four-year run that investors are finding increasingly irresistible.
The Dow is off to its fastest start to any year since the dot-com-fueled bull market of 1999. But this time around the surge isn't driven by blind optimism—many investors simply see few alternatives to stocks.
Tuesday's rally, which pushed the Dow up 87.31 points to 15056.20, was the latest milestone for a steep climb that began in the throes of the financial crisis. Since the market bottomed in March 2009, the Dow has surged nearly 130% without suffering a single bear-market downturn—typically defined as a decline of 20% or more from a recent high.
The latest leg of the rally has been led by stocks favored by cautious investors, such as those companies that pay high dividends. And investors continue to pour money into the perceived safety of bond mutual funds despite extremely low yields.
Traders say the stock market's march into record territory has been fed by a steady stream of buying. That includes smaller investors who had for the most part shunned U.S. stocks in the years since the financial crisis.
"This has been a pretty resilient market," said Sean Lynch, global investment strategist at Wells Fargo Private Bank. "Investors have played the worry game, and those that have sat on the sidelines in cash are starting to question that."
Fueling the growing confidence in stocks is a sense that the U.S. economy is healthy enough that recession isn't a concern but not so strong that the Federal Reserve will pull back on its aggressive measures to ease monetary policy.
The Fed's efforts to keep interest rates extremely low are seen by many as a key driver of the rally.
In recent months, the blue-chip Dow has seemed particularly impervious to economic and political headwinds. The Dow is already up 15% this year, despite a congressional battle over the federal deficit and a banking crisis in Cyprus that threatened a flare-up in the euro zone's continuing debt woes.
The Dow hasn't suffered a three-day losing streak in 87 days, the longest such run since 1958. It has been nearly six months since the Dow suffered even a 5% decline. And the last 10% drop took place in the summer of 2011, when the index lost 17% as the European debt crisis flared up and the U.S. government's debt rating was downgraded.
In addition to the Dow's record finish, a number of other closely watched measures also staked out new ground.
The Standard & Poor's 500-stock index gained 0.5% to 1625.96, its fourth straight record. The technology-heavy Nasdaq Composite rose 0.1% to its highest finish since November 2000.
With cash and money-market funds yielding next to nothing, and Treasury yields near historic lows, more investors are deciding stocks are the best place to put their money, even with a U.S. economy that has struggled to build momentum and relatively weak earnings news.
"The risks really seem to have dissipated," said Benjamin Pace, head of asset allocation for Deutsche Bank Personal Wealth Management. "We're five years removed from the initial onset of the financial crisis, and that echo effect has gotten lighter and lighter."
"All that money is starting to burn a hole in people's pockets," Mr. Pace added. "People talk about there being no alternatives to stocks, and there's an element of truth to that."
Mr. Pace knows the dilemma firsthand.
His investment team came into the year with a cautious stance on the equity market, given worries about the ongoing debt crisis in Europe and budget wrangling in Washington. Last month, though, the Deutsche team, which manages $60 billion in assets, decided to increase its holdings of stocks, and is debating whether to push that allocation even higher.
Many smaller investors are also starting to creep back into stocks.
In the past few months, Fidelity Brokerage Services LLC, the retail brokerage business for the fund-management giant that has more than 14 million client accounts, said more money has been flowing into stocks and mutual funds.
"People's confidence is coming back," said Ram Subramaniam, president of Fidelity Brokerage Services, adding that the amount of client money that flowed into stocks last quarter is about two-thirds higher than it was a year ago.
As a sign of how quickly the recent gains have come, the Dow first cleared the 14000 level in July 2007, as the housing-fueled stock rally was reaching its peak. After the financial crisis, stocks tumbled by 54% before taking the next four years to reclaim the 14000 level again on Feb. 1 this year. In contrast, it took just 66 days to burst from the 14000 level to Tuesday's close above 15000.
There are signs of lingering caution among investors. There have been big gains in the more conservative corners of the market, such as consumer staples, utilities and telecommunications stocks. These companies tend to be valued more for their steady earnings and their dividends rather than their growth opportunities.
Defensive posturing can also be seen among U.S. Treasurys. As recently as last Thursday, the yield on the benchmark 10-year note—which falls as prices rise—dropped to 1.63%, one of the lowest levels in history.
Meanwhile, investors have continued to pump money into bonds alongside stocks. The first 17 weeks of 2013 saw a record $55.2 billion of investor money flow into mutual funds and exchange-traded funds that focus on investment-grade corporate debt, according to Thomson Reuters unit Lipper.
Still, Bob Baur, chief global economist at Principal Global Investors, which manages about $280 billion in assets, has seen more signs of stock-market interest percolating.
"We think U.S. stocks are still unloved and under-owned," Mr. Baur said. "Money has come out of U.S. equities for five years, and it's only started to come back in."
Source:
Jonathan Cheng, Wall Street Journal
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