26 years ago today, while I was watching Teenage Mutant Ninja Turtles, the Dow Jones Industrial Average crossed 3,000 for the first time ever. I love looking back at what the newspapers were saying following market events and milestones.
This was not the high. Not even close.
Even without the Dow topping 3,000, individual investors have been flocking back into the market through direct purchases of stocks and investments in stock mutual funds. “We’re looking at double to triple the level of new sales we saw last fall,” said Michael Hines, a vice president of Fidelity Investments, the nation’s largest mutual fund group.
Those yields.
A big stimulus to higher prices, and to investor confidence, has been the Federal Reserve’s aggressive easing of credit to spur economic growth. On July 16, when the Dow first closed at 2,999.75, the rate on three-month Treasury bills was 7.62 percent. The rate now is 5.56 percent.
Abby Joseph Cohen was doing her thing.
Investors have nervously watched interest rates. “What would make us nervous is a significant rise in interest rates,” said Abby Joseph Cohen, the co-chairman of the investment policy committee at Goldman, Sachs & Company. “We do not think that is going to happen.”
There is always doubt. Always.
At current profit levels, there is little doubt that stock prices are unreasonably high. The expectation of improvement has sustained the market, but there may be limits as to how far that can go.
Evergreen market commentary
“Right now, the market does not care about earnings,” said Byron R. Wien, the chief United States strategist for Morgan Stanley & Company. “It just cares that the recovery is out there. But at a point later this year, if the earnings are not there, the market will be disappointed.”
Michael Batnick is a managing partner at Ritholtz Wealth Management. He is the co-host of Animal Spirits, What Are Your Thoughts, and The Compound and Friends. For disclosure information please see here.
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