Stocks approach new record highs
The economy is tepid and unemployment is high, but the stock market is surging.
More than five years after the financial crisis plunged the country into an agonizing bear market, U.S. share prices are closing in on new record highs.
The Standard & Poor’s 500 index closed above 1,500 on Friday for the first time since 2007. The index rose for the eighth straight day, its best streak since 2004.
The rally has been driven by positive economic reports as well as a momentary lull in Washington gridlock that averted meltdowns over the U.S. debt ceiling.
Another rarely seen factor is also playing a role: emboldened individual investors who have flocked back to stocks in the opening weeks of the new year.
“When they see stocks up 15%, as they were in 2012, they think that perhaps the water is a little bit warmer than it was these last few years,” said Alan Gayle, chief investment officer at RidgeWorth Capital Management.
The fledgling bullishness is seen in investors such as Dylan Lee, a 22-year-old litigation analyst. He has a few shares of Facebook Inc., Alcoa Inc. and First Solar Inc., and is looking to put in a few thousand dollars more.
“Things are picking up for sure,” Lee said. “I definitely feel confident in the stock market at the moment.”
That sentiment helped the Dow Jones industrial average rise 70.65 points, or 0.5%, to 13,895.98 on Friday. That put it within 269 points of its October 2007 peak.
“There’s really no major downside risk in the market right now,” said Randy Frederick, a managing director at Charles Schwab. “In the absence of negative news, the market wants to typically go up.”
Experts caution that stock prices are overdue for at least a brief reversal after their extended advance.
The sigh of relief over avoiding the debt ceiling could give way to new worries about slow economic growth. Also, millions of Americans are being confronted with smaller paychecks this month because of the end of the 2-year-old payroll tax cut.
“The economy is still fragile and it is not yet strong enough to stand on its own feet,” said Wasif Latif, vice president for equity investments at USAA Investments. “We shouldn’t be popping the champagne cork yet.”
The most notable change so far this year has been the upbeat thinking among individual investors.
In the first two full weeks of this year, investors added about $24 billion to equity mutual funds, according to data compiled by the Investment Company Institute. That contrasts with the collective $539 billion they yanked out from 2008 to 2012.
Of course, people getting into the market now can’t recoup the gains they’ve missed since the stock market bottomed in March 2009. The major indexes have more than doubled since then.
Still, it’s unclear whether small investors will remain bullish. January is a traditionally strong month for the market as individuals invest year-end bonuses and set up individual retirement accounts in anticipation of the upcoming tax season.
Many individuals remain wary of the market after getting burned badly.
Tracy Anderson, a paralegal from Watts, is pleased by the market’s advance but believes that stocks are too volatile to consider further investment. “I’m expecting it to come back down a few times before it goes up again,” Anderson said. “I’ve thought about it a few times, but it just hasn’t seemed like a wise idea.”
The market also is rising despite the recent travails of Apple Inc., which was the biggest stock by market capitalization until this week. Apple shares have fallen 37% since September.
Apple’s 31% rise last year played a big role in helping the S&P; 500 to a 13.4% gain. Now the rest of the market is keeping the index aloft.
“The fact that you can have a major company like Apple take a 37% slide while the market continues to trend higher speaks volumes for the underlying resiliency of the equity market,” Gayle said. “It’s a very positive message.”
Times staff writer Andrew Tangel in New York contributed to this report.
