The Standard & Poor’s (NYSEARCA:SPY) 500-stock index hit a record high on Thursday to close up 0.41 percent at 1,569.19, which is four points higher than the previous record of 1,565.15 set on October 9, 2007. The S&P is a popular indicator for not only the health of the stock market, but also for the overall well-being of the U.S. economy. After the subprime mortgage crisis of 2008, the S&P bottomed out at 676.53 in March 2009. The current high is a 132 percent gain from its lowest point during the recession.
Several factors have aided in the S&P’s recent gains, including a continued stimulus from the Federal Reserve in the form of quantitative easing, or bond-buying programs. Low interest rates set by the Fed have also allowed institutions to continue lending, which in turn has promoted investment in stocks and businesses.
According to Nathaniel Popper from The New York Times, another factor that has contributed to the S&P’s rise is “the cost-cutting strategy used by corporate executives, which has raised profit and allowed companies to increase dividends to shareholders.”
Christina Rexrode from the Associated Press notes that, “Companies are making record profits quarter after quarter. They’re hiring in greater numbers, and the housing market is finally recovering. The economy has expanded for 14 quarters in a row.”
However, despite the increased stability in the U.S. economy, there are other problems that could undo some of the recent gains. Unemployment is still relatively high at 7.7 percent, reports Christina Rexrode from the Associated Press. Although applications for unemployment benefits have been on an overall decline since November of last year, the unemployment numbers increased this week for the second week in a row.
The continuing European debt crisis, which includes the recently troubled country of Cyprus, is another potential obstacle to further growth. According to Ned Davis Research via The New York Times, if you exclude the U.S. stock market from the picture, the rest of the world’s stock markets are still 29 percent short of the highs of 2007.
On the other hand, the continuing economic instability around the world has also encouraged foreign investment into the U.S. stock market. According to data from the Commerce Department’s Bureau of Economic Analysis via The New York Times, foreigners bought $385 billion in U.S. stocks and bonds last year.
The S&P 500’s climb has been mirrored by another popular market barometer, the Dow Jones (NYSEARCA:DIA) industrial average. The Dow had its best closing record on Thursday when it hit 14,578.54, capping an 11 percent rise from the beginning of the quarter. It broke its October 2007 record of 14,164.53 when it surged 125.95 points to hit 14,253.77, three weeks ago.
Overall however, the consensus among analysts seems to be that despite some positive indications, there is still a long way to go on the road to full economic recovery after the 2008 financial collapse. As Brian Singer of the William Blair investment firm states via the AP, “the market’s gains Thursday were more about a lack of any major negative developments than the appearance of any good ones.”
The chart below illustrates the S&P 500 and Dow Jones industrial average movement over the past five years.
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