Dow hits 10,000; investors see recovery

October 15th, 2009 by

TAMPA - The Dow Jones industrial average rose back above 10,000 on Wednesday for the first time in a year.

The Dow crossed five figures seven months after it hit a 12-year low of 6,547.05 on March 9. The comeback by the stock market’s best-known indicator is the most visible sign yet that investors believe the economy is indeed recovering from the financial crisis and recession.

“The fact that the market, the Dow hit 10,000 does mean the economy is improving,” said Geoff Simon, senior vice president of Simon Johnson Stanger Wealth Advisors. “The stock market moves based on corporate earnings, and what we had today were some very good corporate earnings reports. In fact, there have been some very good corporate earnings reports over the past couple of weeks.”

Companies like Intel and JP Morgan Chase reported better than expected earnings. According to Simon, that should in turn improve consumer confidence.

“There is something called the wealth effect, and if people have a 401k or they have some money in the markets and they see it go up, and it’s gone up 50 percent since the bottom, people are going to feel a little more secure in the fact that their net worth has risen,” Simon said.

The Commerce Department reported consumer spending declined in September, although less than predicted. If the markets continue showing signs of sustained improvement, Simon predicts consumers will respond.

“People have had a pretty rough year in the financial markets, this year and last year,” he said. “And there was a lot of confidence lost, but now, to see the Dow make this much of a move above 10,000 psychologically helps people feel better. ”

However, analysts still warn that problems like rising unemployment and a weak housing market pose a threat to a solid recovery.

Consumer demand, which accounts for 70 percent of total economic activity, is being watched closely by economists who worry that any recovery from the recession could stall due to the strong headwinds that households still face.

“The increase in sales excluding autos is still fairly modest by normal standards,” Paul Dales, an economist at Capital Economics, wrote in a research note. “Moreover, with households’ finances likely to remain constrained by falling employment, declining real incomes and tight credit, we doubt that consumption will continue to growth at such rates.”

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