As far as Wall Street is concerned, the recession is over. Yes, that's right, today the Dow Jones Industrial Average finally breached its record closing of 14,164.43, set on October 9, 2007. At 9:33 ET this morning, the Dow broke this record and its intraday high. It closed at an all-time record high of 14,254.38.
The Dow Transportation Index also set an all-time high. The Transports are generally considered one of the lagging indicators, which are useful in confirming trends set by leading economic indicators like the Dow Industrials. The S&P 500 hit a 5 1/2 year high, and is getting closer to its all-time record. As expected, 10-year Treasury yields rose, nearing a benchmark 2% rate. As investors pile into riskier stocks, they pull out of ultra-safe Treasury notes. That makes Treasury yields rise to compensate for the lower demand.
What's driving this historic market action? The most important driver is the Federal Reserve's expansive monetary policy. The Fed has done a great job of setting expectations of growth by setting well-defined unemployment and inflation targets. It will maintain low interest rates and quantitative easing until the economy hits those targets. This makes investors look for higher returns on their investments, which they know they won't get from bonds.
Why now? Most of the uncertainty in the last few years is being resolved. We know who the President is, and what he stands for. We didn't fall off the fiscal cliff, and Europe is slowly getting its act together. Sequestration turned out to be less of a crisis and more of a slow burn that might not have much of an impact on economic growth.
True, we are still facing another budget crisis in April and debt ceiling crisis in May. The debt-to-GDP ratio remains above 100%. However, investors are shrugging off this chronic dysfunction in fiscal policy. They are instead focusing on business earnings, which continue to rise.
What This Means for You
This stock market action means investors are becoming more confident in ongoing healthy economic growth. True, the market will rise and fall over the next few days, weeks and months, but the overall trend is positive. Wall Street isn't Main Street, but as confidence returns, it will buoy a new mood of optimism. In addition, as funds continue to pour into the stock market, it provides more capital for businesses to expand through initial public offerings. Most importantly for you, it will translate into more jobs to power this expansion.