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Dow’s record close excites, with caveats
Stocks » With Fed backing, index erases recession losses, even as economy wavers.


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Company profits, which theoretically provide the basis for investing in stocks, have also surged. "Corporate earnings have been doing very nicely, thank you," said Alan S. Blinder, professor of economics and public affairs at Princeton University.In aggregate, companies in the S&P 500 have not reported a decline in earnings since the third quarter of 2009.

The focus on profits explains why the stock market can be doing well while most people are not experiencing a resurgent economy. A bet on an index like the Dow is effectively a narrow wager on the profits of 30 companies, not necessarily the economic health of average Americans, said Blinder. "Corporate profits have done better than median wages," he said.

At a glance

2007 vs. 2013

The Dow » Then 14,164.53, now 14,253.77

Unemployment rate » Then 4.7 percent, now 7.9 percent

Number of people unemployed » Then 6.7 million, now 13.2 million

GDP growth » 2.5 percent, now 1.6 percent

Median annual household income » Then $54,489, now $50,054

Median sale price of an existing home » Then $207,000, now $174,000

People on food stamps » Then 27 million, now 47.7 million

Gallon of gas » Then $2.77, now $3.74

Source: The Associated Press, The Salt Lake Tribune

For many, rally into Dow record feels empty

Here are five reasons why some Americans don’t share the joy:

Fewer people have money invested in the stock market, so many missed out

Wages are stagnant and incomes are shrinking

The Social Security payroll tax break is no more, costing someone making $50,000 about $1,000 a year

The housing market may have hit bottom, but it hasn’t recovered

Despite recent gains, hiring remains slow

Source: The Associated Press

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The big question is whether the stock market can keep going up from here.

One determinant is whether stocks are seen by traders as relatively expensive, and therefore vulnerable to a sell-off. Robert J. Shiller, a professor of economics at Yale University, has built a model for gauging whether stocks are cheap or pricey. Right now, stock valuations are above historical averages but well below the stratospheric highs they’ve reached in bubbles, he said. According to his model, stocks are signaling that they can return about 3 to 4 percent a year.

"That’s not horrible," he said, quickly adding that the stock market always has a mind of its own.

Its unpredictability may deter individual investors, although they have recently shown signs of coming back into the market. Given that stocks have risen and then disappointed for over a decade, skittishness is understandable.

The recent strong performance of the Dow Jones average also masks the woeful performance of some important companies. For instance, GE, held for generations in family portfolios, is down more than 40 percent from when the Dow last peaked in 2007. It may seem remarkable that Bank of America, grappling with a rat’s nest of issues, has risen by 200 percent from its 2009 low. But it is still nearly 80 percent below its high before the 2008 financial crisis.

Stock market analysts, of course, fret over what will happen when the Fed stops its stimulus.

Rosenberg, the economist, noted that the stock market has declined sharply on the two occasions since the crisis that the Fed signaled that it might temper its money printing.

"In both cases, the Fed backtracked," he said.


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Still, the Fed’s easy money doesn’t look like it is going to dry up any time soon. The Fed has committed to maintaining a loose monetary policy until unemployment is well below current levels. And its policymakers will be all the more likely to take that stance if fiscal policy acts as a brake on the economy.

"How the Fed extricates itself is important," said Bernstein, the money manager. "It could happen two, three, four, five years from now."

In the meantime, he said, he remains confused about why more investors aren’t buying stocks.

"I just don’t understand why people don’t want to play," he said.



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