The New Year started off on the right foot, with the S&P 500 closing above 1500 for the first time in five years. This milestone followed five days of straight gains, another first since 2007. This important stock market index has risen 5% in January alone, signaling the return of optimism on Wall Street.
Similarly, the Dow Jones Industrial Average rose to within 270 points from its record high of 14164.53, reached in 2007. In other words, we are only a few short months (possibly weeks) from the stock market regaining all the ground it lost during the 2008 financial crisis. That's something to celebrate!
What It Means to You
There are three things that support investors' confidence. First, and most important, is that Washington seems to have given up trying to push the U.S. economy into catastrophe. The fiscal cliff has been resolved, or at least postpones. The debt ceiling has been extended for a few months. It seems the battle between parties has shifted to gun control. While this is an important issue, it won't create an economic stalemate.
Second, the housing market is recovering. Even if it's in fits and starts, all the signals are there to show it is definitely improving. In some markets, like Phoenix, many sellers are getting more than their asking price. Foreclosures are very difficult to even get, thanks to competition from investors.
Third, earnings are improving. Many companies have adjusted to the post-recession world, and marketed products to consumers who are looking for value. There has been a lot of cash sitting on the sidelines, both from investors and in corporate coffers. That money is looking for a higher return than Treasuries. Expect this bullish trend to continue.