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Wavering Heights: Dow Jones Hits Its Highest Point Ever

Andre Gray |
November 20, 2013 | 1:33 a.m. PST

Staff Reporter

Unsustainable, but still neat. George Wickes.Flickr.Creative Commons.
Unsustainable, but still neat. George Wickes.Flickr.Creative Commons.
It was everything the financial nerds had dreamed it would be: the digital “16,000” glowed proudly at the New York Stock Exchange on Monday, as traders looked on wide-eyed. It’s the highest number the Dow Jones Industrial Average, an index based on the prices of stock in 30 large American companies, has ever hit. In a similar bout of exhilaration, the S&P 500 soared to a record perch of 1800 points. 

As expected, both indexes finished out the day slightly under these dazzling digits, as some investors gave into their fear of heights and pulled money out of the market. Even so, Monday marks yet another milestone in a year where the stock market has performed up an intimidating 25 percent. 

Most of the growth stems from the Fed’s surprising announcement in September, when they assured investors that Federal stimulus will not be tapering down any time soon. Whether or not that assurance is legitimate in the long term will be revealed on Wednesday, when the Fed releases minutes from their last meeting, and investors scour the notes for a timeline of stimulus deceleration. 

But supposing stimulus continues at current levels, the question still resonates: is the stock market flying too close to the sun? 

The answer is a stern, noncommittal “maybe”. With a market trading at 16 times earnings, the possibility of a stock market bubble is uncomfortably real. With so much overvaulation, a sudden decline in confidence could mean a long way for prices to fall. Still, investors like William Lynch of Hinsdale Associates are cautiously optimistic.

"Historically speaking, these valuation levels are about in line with the long-term average," he said in his weekly commentary. And Cam Albright, director of asset allocation at Wilmington Trust Investment Advisors, expressed similar sentiments, claiming that "the market has continued to push forward, in part because we're looking ahead and believing economic growth is looking pretty decent next year.”

For now, us average, non-day trading citizens can probably shrug off the numbers. As long as the Federal Reserve continues to tread delicately, the Dow Jones will continue to perform at these overheated values, if not higher. The potential for a sudden drop in confidence looms, but it’s not likely in the near future. 

What we do know is that the US stock market has reached levels that no longer bear any resemblance to the status of the economy at large. Some 401(k)’s may have risen in value temporarily, but employment numbers, housing prices and other standard measures of economic health don't respond to the day to day ups and downs of such dramatic investor speculation. The numbers are simply too big to reflect the actual, sluggard growth of the post-recession economy. That being said, there’s no reason we can’t still appreciate how nice a 16,000 looks on a trading screen. 



You can reach Staff Reporter Andre Gray here.



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