New York Two years ago, the stock market was roadkill along the financial highway. Now one of the greatest bull markets in history is rolling along — maybe enough to finally get the attention of average investors.
The Dow Jones industrial average closed above 12,000 for the first time in two and a half years Tuesday, putting the Great Recession even farther in the rearview mirror and erasing most of the damage it inflicted on tens of millions of retirement accounts.
A broader measure of the stock market, the Standard & Poor’s 500 index, closed above 1,300 for the first time since Aug. 28, 2008. And at least one widely watched measure suggests stocks are still cheap by historical standards.
The remarkable run for stocks began on March 9, 2009. The Dow stood at 6,547, its lowest point in 12 years. Since then, in the fastest climb since the Great Depression, it has risen 84 percent thanks to surging corporate profits, the unexpected resilience of personal spending and a bond-buying intervention by the Federal Reserve that made stocks more appealing. And some of the early gains came because investors realized that stocks had fallen too far during the financial crisis.
The Dow’s total return, which assumes stock dividends were reinvested, is 92 percent. Anyone who bought an S&P; 500 index fund that day in March 2009 has doubled his money, assuming dividends were reinvested.
The Dow closed at 12,040.16 on Tuesday, advancing 148 points after strong corporate earnings reports and signs that the manufacturing sector had a good month in January. The S&P; 500 closed at 1,307.59, up 21 points.
The rebound could bring small investors back to the stock market. They have pulled nearly $245 billion out of U.S. stock mutual funds since June 2008, the last time the Dow was at 12,000, according to the Investment Company Institute. Earlier in the decade, they typically put in $145 billion a year.
And if Americans believe in the stock market again, it could accelerate the economic recovery.
“The lack of confidence has acted as a sedative across the economy,” says David Kelly, chief market strategist at J.P. Morgan Funds. “The Dow at 12,000 could boost the psychology of the American investor and be a more powerful stimulant than anything else in driving the next stage of this bull market.” Investors who see their stock portfolios rising will be more likely to spend money and take risks that could boost the economy, he says.