Stocks near new heights as small investors regain faith
New York • Americans seem to be falling in love with stocks all over again.
After millions of people all but abandoned the market following the 2008 bust, individual investors are pouring money into stock mutual funds like they haven't in years. The flood, fueled by fading economic threats and better news on housing and jobs, has helped propel the broad market to within a few good days of its highest level ever.
"You've got a real sea change in investor outlook," said Andrew Wilkinson, chief economic strategist at Miller Tabak Associates.
The benchmark Standard & Poor's 500 index closed above 1,500 on Friday for the first time since the start of the Great Recession in 2007, lifted by strong earnings from Procter & Gamble and Starbucks. It was the eighth straight gain, the longest since November 2004.
The Dow Jones industrial average rose 70.65 points, or 0.5 percent, to 13,895.98. That is a couple hundred points shy of the all-time high of 14,164.53 on Oct. 9, 2007. The Nasdaq composite index climbed about a half a percent.
Americans' latest stock-market romance is only a few weeks old and could easily fade before it becomes something more serious. Some market watchers warn that given the big run-up in prices, the market is ripe for at least a brief correction.
Still, the optimism that has pervaded the market in recent weeks is a marked change from recent years. Until very recently, many investors of all stripes had continued to shy away from stocks in the face of a trio of hovering problems the potential breakdown of the eurozone, fears of a stalling Chinese economy and political brinkmanship in Washington that threatened to drive the economy into a recession.
One after another, these threats appear to have dissipated. This week, Congress found at least a short-term way around the nation's debt ceiling sidestepping Republican threats of allowing the government to default on its debt when it reached a self-imposed borrowing limit in February or March.
As the fog of crisis has cleared, investors have been able to more clearly focus on the good economic data pointing to a growing housing market, a shrinking unemployment problem and stronger than expected corporate earnings.
"The last few weeks represent the belief that there will be no existential threat to any large global economy in 2013," said Nicolas Colas, chief market strategist at BNY ConvergEx group.
Russ Koesterich, chief investment officer at BlackRock, said the current threats are "mundane" in comparison to what investors have faced over the past few years. "We're not talking about big crises anymore," Koesterich said.
Procter & Gamble, world's largest consumer products maker, gained $2.83 to $73.25 after reporting that its quarterly income more than doubled. P&G also raised its profit forecast for its full fiscal year. Starbucks rose $2.24 to $56.81 after reporting a 13 percent increase in profits.
"Earnings are growing," said Joe Tanious, a global market strategist at JPMorgan. "The bottom line is that corporate America is doing exceptionally well."
Stocks have surged this month, with the S&P 500 advancing 5.4 percent. It jumped at the start of the year when lawmakers reached a last-minute deal to avoid the "fiscal cliff." Stocks built on those gains on optimism that the housing market is recovering and the labor market is healing. The Dow Jones is up 6 percent on the year.
Deutsche Bank analysts raised their year-end target for the index to 1,600 from 1,575.