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Investors are cheering a soaring stock market as the Dow Jones Industrial Average crossed 14,000 and came within 200 points of its all-time high. That milestone is leading to inevitable comparisons to the last time the Dow was at 14,000 and raises questions about how much room there is to grow. As stocks are a significant wealth-builder in many individual portfolios, the answer is important.
The last time the Dow hit 14,000 was Oct. 17, 2007. An article in The Reformed Broker points out that a peaking credit bubble accounted for part of the market's highs, along with strong growth of infrastructure building. The housing bubble further fueled investor confidence, but it was a false sense of wealth.
Post-recession, credit has tightened significantly, leading to a rise in the personal savings rate and a flood of investor demand for safe, low-yielding bonds. The housing sector of the economy, unlike in 2007, is still struggling toward recovery. Businesses have been running lean for the past few years.
Many analysts believe that unlike the last time we reached 14,000, there is still room for stocks to grow in this recovering economy. Individual investors appear to believe it, too. After sitting on the sidelines over the past five years, investors moved headlong into stocks: Last month marked the largest single-month inflow into equity mutual funds and exchange-traded funds since 1996, according to Thomson Reuters' Lipper service.
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