The Dow Jones industrial average on Tuesday rose to its highest level ever, erasing losses from the financial crisis after a four-year rally fueled by the fastest profit growth since the 1990s and monetary stimulus from the Federal Reserve.
The 116-year-old Dow jumped 0.7% to 14,226.2 at 9:40 a.m. EST, 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 Oct. 11, 2007. The gauge plunged 34% in 2008 for the worst performance in 77 years as the housing bubble burst and the U.S. financial system required a government bailout.
Almost $10 trillion has been restored to U.S. 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 Oct. 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 20% less than the price-earnings ratio at the previous peak and 15% 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.
“In many ways, the valuations on this market look more attractive because the profit margins that we've seen are outstanding,” said Hayes Miller, who helps oversee about $48 billion as the Boston-based head of asset allocation in North America at Baring Asset Management. “Companies have found ways to cut costs and raise productivity levels,” he said. “It's an argument to the idea that what happened in 2008 won't occur in 2013. Equities are now fair-valued vs. expensive, which they were in 2007.”