The benchmark Dow Jones industrial average reached an all-time high Tuesday on news that China was pledging to plow more money into its economy, returning the markets to highs not seen since before the 2008 financial crisis.
By noon Tuesday, the Dow was up more than 145 points, or 1.03 percent, to 14,273.70, blowing past both an intraday record and a closing record that were both set in October 2007, during a time when the economy was just peaking and headed toward disaster. The previous intraday-trading high was 14,198.10; the closing record was 14,164.53.
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A little more than five years later, the crisis seems a distant memory for a number of big U.S. companies that are reporting record profits, even though many Americans remain jobless and wages have stagnated.
The country’s most famous index tracks the stock prices of 30 companies, including such iconic firms as IBM, General Electric and JPMorgan, and it is weighted by price.
IBM, which carries by far the most weight in the Dow Jones index, has risen more than 80 percent in the last five years. Even a company like Hewlett-Packard, which also is on the index and has struggled to find its footing in recent years, has seen its shares jump more than 40 percent so far this year.
The Standard & Poor’s 500-stock index, another oft-cited measure for the market, was also heading toward its record high Tuesday morning, jumping about 15 points, or 1.02 percent, to 1,540.69.
Tuesday’s market gains came as the Chinese government announced overnight it was maintaining a growth target of 7.5 percent for this year. The government said it plans to increase spending to support the country’s economy after a slip in growth last year.
The Dow’s record high confirmed that the ongoing political paralysis in Washington has failed to spook the markets much in the past year. As lawmakers and President Obama lurch from one fiscal deadline to the next — from the debt-ceiling crisis in 2011 to the fiscal cliff to the steep budget cuts triggered last week — the markets have soldiered on with hardly a bump.
“The stock market and the American public are looking at the political theater with a jaundiced eye,” said Ted Weisberg from the New York Stock Exchange, where he has been a trader on the floor for more than four decades.
The markets hardly reacted on March 1, when severe domestic and defense cuts went into effect. The Dow Jones Industrial even rose 0.25 percent that day. A popular index for gauging fear in the markets called the CBOE Volatility Index, or the VIX, dropped nearly one percent.
Wall Street’s reactions have developed into a pattern of near-indifference followed by optimism when a political resolution is found.
In the days building up to the fiscal cliff at the end of last year, the markets were sanguine. But when a compromise was reached on New Year’s Day, the Dow surged more than 308 points, or 2.35 percent. The S&P 500 jumped 36.25 points, or 2.54 percent.
Many on Wall Street feel they’ve seen this movie before, even dismissing the dire warnings of politicians as all theater.
“My sense is that our president and the White House are crying wolf,” Weisberg said of President Obama’s warnings about the sequester last week.
Yu-Dee Chang, chief trader at Ace Investment Strategists in Vienna, Va., said the impact of the sequester is being felt more strongly in Washington than on Wall Street. Investors have been less worried about the cuts themselves, which may be dramatic but still represent a tiny sliver of the national deficit.
Chang also noted that stock prices have been boosted by the Federal Reserve’s massive stimulus program that has pushed down both long- and short-term interest rates. The low rates have encouraged investors to seek out higher returns in the stock market.
“The market has the Fed behind its back,” Chang said. “Everyone is still looking for that yield. . . That’s why the Fed strategy is working.”
Adjusted for inflation, the Dow is still about 10 percent off the 2007 high. Nevertheless, the market still has shown a remarkable turnaround since the crisis, at least compared to other measures like the country’s economic growth and joblessness figures.
People eyeing their retirement portfolios may be cheering the market’s return to pre-recession levels. But how much longer can the good times last?
Ed Easterling, founder and president of investment firm Crestmont Holdings, says that stocks are at a point that’s “about as good as they can get, absent a bubble.”
“It’s time to be careful,” he said.
Staff writer Ylan Q. Mui contributed to this report.
