Monday 23 October 2017

Dow hits new record on Fed stimulus and profit growth

Inyoung Hwang

THE Dow Jones Industrial Average rose to its highest level ever, erasing losses from the financial crisis after a four-year rally fuelled by the fastest profit growth since the 1990s and monetary stimulus from the US Federal Reserve.

Almost $10 trillion has been restored to US equities as retailers, banks and manufacturers led the recovery from the worst bear market since the 1930s. It took the Dow less than 65 months to rise above its previous high, set on October 9, 2007, more than a year faster than the recovery from the internet bubble.

While the Dow has more than doubled in the four years since its bear-market low, its valuation remains 20pc less than the price-earnings ratio at the previous peak and 15pc 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.

"Psychologically, it may give a sense that we have recovered a tremendous amount from the depths of the crisis," said Wasif Latif, the San Antonio-based vice president of equity investments at USAA Investments.

"On the other hand, it could create a sense of nervousness that we reached an all-time high, so how much more is there to go?"

Closing level

The 116-year-old Dow jumped 0.7pc to 14,226.2 during morning trading in New York, climbing above the 14,164.53 record closing level it reached before the global financial crisis.

It also eclipsed its previous intraday high of 14,198.1 from October 11, 2007.

The gauge plunged 34pc in 2008 for the worst performance in 77 years as the housing bubble burst and the US financial system required a government bailout.

American Express, Caterpillar and Home Depot have led the Dow's rally since its 2009 low, climbing more than 275pc as the economy recovered from the worst recession in seven decades. Hewlett-Packard, the world's largest personal computer maker, is the only stock still in the 30-company gauge to fall since March 9, 2009.

The shares tumbled 22pc as mobile devices such as Apple's iPad and iPhone began to compete with PCs.

Exxon Mobil, which has rallied 38pc, is the second-worst performer since the gauge bottomed.

Irish Independent

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