Wednesday, 6 March 2013

It's a new high: Dow smashes through 14,198

The journey has taken more than five years, but the Dow Jones industrial average pushed through to a record high Tuesday just after the opening bell.

The Dow crossed above its intraday high of 14,198.10 hit on October 9, 2007. The blue chips got a boost from upbeat economic data from Europe. China pledged to meet its growth targets.

Bank of America and Cisco led the Dow gainers.

After the 2007 peak, the Dow plummeted 54 percent over the next 18 months, bottoming out at 6,547 in March of 2009. Since that low, the Dow has more than doubled.

The S&P 500 and the Nasdaq also gained at the open. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 14.

But what does the new high mean for the economy?

"It's meaningful in the sense it obviously has a lot of media potential - it's likely to move stories about the stock market to the front page from the financial section," said investor Hugh Johnson. "From that point of view it is good news in that it tends to lift spirits or raise confidence. There is the wealth effect of the fact that when you start to lift confidence it leads to stronger consumer spending. From that point of view it will have positive feedback on the economy," he added.

In Johnson's view, the gridlock in the nation's capital is unlikely to bring the market down.

"The question it is going to raise - which this market has raised continuously - is how is it this market is doing so way in the face of meaningful spending cuts coming out of Washington with the sequester? The message of the markets is although the sequester is likely to impact gross domestic product, it is not likely to end the current stock market business cycle, or the bull market expansion. It is not likely to interrupt the current cycle."

(Read More: Cramer: Near All-Time Highs, Should You Buy?)

On the economic front, the Institute for Supply Management's (ISM) non-manufacturing index, which tracks monthly changes in the services sector, said the pace of growth in the vast U.S. services sector accelerated to its fastest pace in a year in February, helped by a rise in new orders and demand for exports.

ISM said its services index rose to 56 from 55.2 in January, exceeding economists' forecasts for 55. It was the highest level since February 2012. A reading above 50 indicates expansion in the sector.

The new orders index jumped to 58.2 from 54.4, while orders for exports rose to their highest level since May 2007 with that gauge at 60.5, up from January's 55.5.

"This was no question a positive number," said Michael Woolfolk, senior currency strategist at BNY Mellon. "It reflects improvement in reinforces the view that the economy continues to improve and should contribute to gains that have driven the stock market to a new record."

European shares were boosted by the news that euro zone finance ministers have struck an agreement to bail out Cyprus by the end of March, although they have yet to work out the details of the 17 billion euro ($22.1 billion) financial aid package.

Shares in mainland China recovered 2 percent after hitting a six-week closing low in the previous session, as outgoing Chinese Premier Wen Jiabao set out a reform plan at the National People's Congress in order to achieve a 2013 growth target of 7.5 percent.

(Read More: Why China's Property Market Is Getting Scary)

The Senate Budget Committee is meeting to discuss reducing the fiscal deficit by eliminating wasteful spending in the tax code.

House Speaker John Boehner said President Barack Obama and he had made no headway on a deal to avoid sequestration over the weekend. Meanwhile, House Republicans are expected to introduce a bill to extend government funding through September, to avoid a government shutdown at the end of the month.

While stocks so far have largely ignored sequester concerns, analysts say signs the cuts are beginning to impact the economy could eventually move markets.

On Monday afternoon, Stephen King, chief global economist at HSBC, said that the U.S. was living in "a fantasy world" over the impact sequestration would have on growth.

"If you look at the projections from the Congressional Budget Office, they assume that growth goes back to between four to five percent in real terms between 2014 and 2018. Their numbers suggest that the U.S. will post the fastest rate of productivity growth of any decade in the last 50 or 60 years," King told CNBC Europe. "Even allowing for the fact that there's some debt reduction, coming through sequestration, there's still a degree of wishful thinking with regard to the economy which probably isn't going to come true."

? 2013 CNBC LLC. All Rights Reserved

Source: http://www.nbcnews.com/business/its-new-high-dow-smashes-through-14-198-1C8685444

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