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Broad-Based S.&P. 500-Stock Index Ends at Record High Broad-Based S.&P. 500-Stock Index Ends at Record High
(about 3 hours later)
The Standard & Poor’s 500-stock index closed on Thursday at a new record, eclipsing its previous closing high set in October 2007. The most widely followed barometer of the United States stock market rose above its 2007 peak to hit a high on Thursday, while most of the rest of the world could only look on in envy.
At 4 p.m., the benchmark index was at 1,569.19 points, up 0.4 percent for the day, despite a report of rising claims for unemployment benefits. It closed the first quarter with a robust 10 percent gain. The nominal record set by the Standard & Poor’s 500-stock index is the latest sign that the American economy is recovering some of the strength it had before the financial collapse of 2008, partly helped by stimulus from the Federal Reserve Bank.
The blue-chip Dow Jones industrial average, which was also up 0.4 percent Thursday, already passed its 2007 milestone earlier this month, but the S.&P. 500 is widely considered to be a broader-based reflection of the American stock market. The Nasdaq composite index of largely technology stocks added 0.3 percent Thursday. It has been a little more than three weeks since the Dow Jones industrial average hit a milestone high, also set in October 2007, but the S.& P. is considered more representative of the breadth of American stocks.
The benchmark index repeatedly came close to reaching its own record level in recent days, but pulled back each time as investors grappled with concerns about the banking crisis in Cyprus. European stock markets rose on Thursday after Cypriot banks opened for the first time in two weeks with less turmoil than expected. The S.& P. reached its new nominal high after several days of flirting with the record as investors struggled with the turmoil caused by Cyprus’s banking crisis. The milestone capped a strong first quarter, in which the index rose 10 percent to hit the high.
The new high caps a four-year run for the S.&P. 500 that began in 2009 after the near collapse of the American financial system. The index rose to a high on Oct. 9, 2007, but then fell 57 percent to hit an ominous intraday low of 666.67 on March 6, 2009, and a closing low of 676.53 three days later. Meanwhile, stock markets in nearly every other large economy around the world are still well below their previous records. An index of the entire world’s stock market, without the United States, is still down about 29 percent from the level it hit in 2007, according to analysis done by Ned Davis Research. Only some smaller nations, such as Denmark, Mexico and Colombia, have fully recovered their losses.
The surge in the S.&P. 500 this year still puts the index only slightly above where it was back in the heady days of 2000, when technology stocks were leading the market higher. Factoring in inflation, the S.&P. 500 is still well below the highs reached in 2000 and 2007. The index is also still below the intraday record level of 1,576.09 hit on Oct. 11, 2007. Workers in the United States have learned that the stock market’s performance is not always a good gauge of the underlying economy’s strength. Unemployment in the United States has remained stubbornly high at the same time that share prices have risen since bottoming out in March 2009. Even with the record level, the S.& P. 500 is still not back to its 2007 level when inflation is taken into account.
The current rally has been fed by bond-buying programs begun by the Federal Reserve, which helped nourish a recovery in corporate profits. Still, the performance of the American stock market would have seemed improbable during the depths of the crisis, given that it was financial markets in the United States that led the global economy into recession. Strategists and economists have said that the divergence since then is largely a result of the relative speed with which the United States government and corporate sector responded to the causes of the 2008 crisis.
The gains have not generally been enjoyed by Americans without stock portfolios, leading to widespread skepticism about the sustainability of the market’s rise. But more recently there have been signs that the economic recovery may be broadening out into the rest of the economy. “The U.S. addressed the problems of the financial crisis faster and with much more ferocity than the rest of the world,” said Edward M. Clissold, a market strategist at Ned Davis Research.
The Commerce Department said Thursday that the economy grew at a 0.4 percent annual rate in the fourth quarter of 2012, which was faster than the 0.1 percent that the government previously estimated. The number of people filing for unemployment benefits rose 16,000 last week, more than predicted, but longer-term numbers have pointed to a recovery in the labor market. The overall unemployment rate dropped to its lowest level in four years in February. The S.& P. 500 finished Thursday up 0.4 percent, or 6.34 points, at 1,569.19. The Dow Jones industrial average climbed 0.4 percent, or 52.38 points, to 14,578.54. That is 11 percent above its level at the beginning of the quarter.
The market gains on Thursday were relatively broad based, with 333 stocks in the S.&P. 500 rising. The Nasdaq composite index rose 0.3 percent, or 11 points to 3,267.52, far below the heights it reached during the dot-com boom of the late 1990s.
Economists have given much of the credit for the market’s recovery to the Fed, which worked quickly with the rest of the federal government to bail out and revamp the nation’s banks and financial system, which the European Central Bank started doing in earnest only last year. While bank bailouts remain contentious, they have allowed the institutions to resume lending.
The Fed also acted on its own to pump money into the economy with bond-buying programs known as quantitative easing. Many central bankers around the world worried that those programs would result in extreme inflation. There are also fears that the American economy will not be able to remain on its current trajectory once the Fed draws back. But all that has not stopped other countries from beginning to copy the Fed’s lead.
“The Fed has won the battle, and continues to win the battle,” said Jack Malvey, the chief global markets strategist at BNY Mellon.
In Japan, the government of Prime Minister Shinzo Abe was elected in December after promising a more aggressive approach to monetary policy. Japan’s Nikkei index has been the best performer of any of the world’s large stock markets in the first quarter of this year, rising 19 percent. That still leaves the Nikkei almost 68 percent below the heights it scaled in 1989 before Japan’s real estate market soured.
The European Central Bank began taking more aggressive action to stimulate the continent’s economy last year, most notably after the bank’s president, Mario Draghi, said in July that he would do “whatever it takes to preserve the euro.” Since then, European stock indexes have roughly kept pace with the S.& P. 500, but the MSCI index of European stocks remains 28 percent below its 2007 peak.
The other major catalyst for the ascent of the American stock market is the cost-cutting strategy used by corporate executives, which has raised profit and allowed companies to increase dividends to shareholders. That strategy, however, has exacted a toll on American workers, who have faced layoffs and pay cuts.
In Europe, by contrast, the greater legal protections offered to workers have made it harder for companies to revamp their businesses for the current economic environment.
“There is a very aggressive corporate mind-set, that a lot of people don’t agree with,” said Joseph P. Quinlan, the chief market strategist for Bank of America’s private wealth management division. “But corporate America has proved that it is much nimbler and more resilient” in the new economic climate.
In many emerging economies, the lagging performances of the stock markets have not necessarily pointed to slower overall growth.
China’s economy, for instance, continues to expand at a significantly faster pace than the American economy. But China’s stock market has suffered because growth is slower than many investors expected just a few years ago. In addition, Chinese companies are more reliant on exports to places like Europe than corporate America. That has contributed to the MSCI China index remaining down 42 percent from highs in 2007.
Even with higher economic growth in some developing countries, investors have sought out American investments as a safe haven during the last few years when big shocks threatened the global economy. Last year alone, $385 billion in foreign money flowed into American stocks and bonds, while investors in the United States sent almost no new money overseas, according to data released this week by the Commerce Department’s Bureau of Economic Analysis.
Many strategists expect the big global threats to diminish as 2013 goes on, which could help encourage more investing outside the United States. So far this year, the stock markets in a number of countries have done better than the S.& P. 500.
Even in the United States, the rising market has not helped all stocks. Citigroup’s shares, for instance, are worth 92 percent less than they were back in 2007. That is almost the exact percentage the Greek stock market is down from its 1999 peak.
In the bond market, interest rates showed little change on Thursday. The price of the Treasury’s 10-year note slipped 2/32, to 101 11/32, while its yield remained steady at 1.85 percent.