Associated Press file photo
Associated Press file photo
NEW YORK – The stock market is back.
Five-and-a-half years after the start of a frightening drop that erased $11 trillion from stock portfolios and made investors despair of ever getting their money back, the Dow Jones industrial average has regained all the losses suffered during the Great Recession and reached a new high. The blue-chip index rose 125.95 points Tuesday and closed at 14,253.77, topping the previous record of 14,164.53 on Oct. 9, 2007, by 89.24 points.
“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 new record suggests investors who did not panic and sell 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 impact of inflation. Adjusted for that, the Dow would have to reach 15,502 to match its old record.
The Standard and Poor’s 500, a broader index, closed at 1,539.79, 25.36 points from its record.
The last time the Dow hit a record, George W. Bush still had another year as president, Apple had just sold its first iPhone and Lehman Brothers was still in business.
But unemployment was 4.7 percent versus 7.9 percent today, a reminder that stock gains have proved no elixir for the economy.
Still, the Dow high is another sign that the nation is slowly healing after the worst recession since the 1930s. It comes as car sales are at a five-year high, home prices are rising and U.S. companies continue to report big profits.
The stock gains have helped retirement and brokerage accounts held by many Americans recover. That, in turn, has helped push U.S. household wealth nearly back to its peak before the recession, though many in the middle class are still deep in the hole. Most middle-class wealth is tied up in home values, which are still a third below their peak.
Good economic news Tuesday helped lift stocks. 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 showed U.S. service companies grew last month at their fastest pace in a year.
In the depths of the recession 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.
“It feels great,” said Marty Leclerc, chief investment officer at Barrack Yard Advisors, an investment firm. In early 2009, when stocks were plummeting, “it looked like Armageddon was nigh. It’s a lot more fun to be in a rising market.”
“People thought we were going to relive the 1930s,” says Robert Buckland, chief global stock strategist at Citigroup. He calls the stock gains since “pretty remarkable.”
From its peak in October 2007 to its bottom in March 2009, the Dow fell 54 percent. That was far less than the nearly 90 percent drop in the Great Depression but scary nonetheless. There had been 11 previous bear markets since World War II and none had reached 50 percent.
One man who stayed calm and didn’t sell was Jay Sachs, 70, a retired computer consultant. In fact, as others scrambled to exit stocks in late 2008, he plunged in more – scooping up drug maker Ely Lilly and Co., health-care products giant Johnson & Johnson and food company General Mills.
“You have to be greedy when others are fearful,” he says, quoting a famous line from billionaire Warren Buffett, who also bought in the panic. Sachs adds, “People are still fearful and that’s a good sign. There’s room for growth.”
He says his portfolio has doubled in value in four years.
As stock rebounds go, this 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 over hot stocks.
The past four years, none of that has happened.
Adding to the chastened 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, nearly unprecedented in a bull market since World War II.
In this run-up, nearly all the buying has come from companies repurchasing their own stock in an effort to boost its value. Companies in the S&P 500 have bought $1.5 trillion since the Great Recession began in December 2007.