So why did the Dow hit an all-time high?

The surge shows a continuation of the market’s faith in the world’s central banks and government stimulus programs.

By Jim J. Jubak Mar 5, 2013 2:37PM
The Dow Jones Industrial Average ($INDU) set an all-time record high Tuesday.

While we’re whooping in celebration and waiting for the caps we’ve thrown in the air to come down, let's take a moment to ponder why.

The service sector survey of purchasing managers from the Institute for Supply Management Highlights increased to 56.0 in February from 55.2 in January. That’s the highest level since February 2012 and above the 55.4 that economists were expecting. (In this survey anything above 50 shows the economy is expanding.)

In normal times, the service sector survey doesn’t carry much weight since it’s much less cyclical than the manufacturing sector. But Tuesday I think this is being greeted as confirmation that the automatic cuts in government spending that went into effect on March 1 as a result of the sequester haven’t yet -- four days later -- squashed U.S. economic growth.

Image: Bull (Photographers Choice RF/SuperStock)The market seems determined Tuesday to read the services survey for the eurozone as positive. The numbers released Tuesday morning are indeed, at 47.9, better than the preliminary 47.3 report, but the sector still shows a contraction from 48.6 in January -- and still shows that economic activity is slowing.

Maybe the market was cheered by news in the survey that showed continued growth in the German service sector -- although even here the 54.7 reading is below January’s 55.7. The numbers from France -- 43.7 -- and Italy -- 43.6 -- showed those two economies in a severe contraction.

No, rather than any specific economic good news, I think Tuesday’s rally is a continuation of the market’s faith in the world’s central banks and government stimulus. Overnight China reaffirmed its 7.5% GDP growth target for 2013 and announced a budget with a 10% increase in government spending. Add that to continued belief in stimulus from the Federal Reserve, the Bank of Japan, the Bank of England, and maybe soon the European Central Bank and why shouldn’t stocks be in rally mode from Tokyo to Hong Kong to Frankfurt to New York.

It would take a real curmudgeon to suggest that with the Dow near an all time high on faith in global central banks, this rally might be a good time to raise a little cash.

At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. When in 2010 he started the mutual fund he manages, Jubak Global Equity Fund (JUBAX), he liquidated all my individual stock holdings and put the money into the fund. The fund may or may not own positions in any stock mentioned. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here
Tags: DOW
105Comments
Mar 5, 2013 4:21PM
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The Dow is trading higher because the top 4% of the population has the capital to buy and sell, determining the volume on Wall St. As has so often been the case the actions on Wall St. are not indicative of what is going on on Main St. Inflation is up. Discretionary income is scarce. People spending are, once again, people spending money they don't have by putting it on their credit cards. And banks, once again, are inclined to give first time home buyers low-interest loans to purchase homes they truly cannot afford. Do the banks care? Noooo. They'll just get bailed out again. While I am naive to the mechanizations of financial markets I do feel I possess enough common sense to realize the bail out bordered on criminal and I didn't vote for it. It's time to close the electoral college and let people vote for what it is we want and don't want without the representation of the criminals and sidewinders that have only been put in place on the Hill based on how much money they stole to campaign for office. It's time the people took this country back.

Mar 5, 2013 4:17PM
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The biggest Ponzy/Pyramid scheme rolls on. When are we going to prosecute?
Mar 5, 2013 3:54PM
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With 70 minutes left in the session, just 66 million shares have traded hands on the Dow.  For a move like this, we should see 10 times this volume, at least.  The lack thereof tells us everything we need to know.
Mar 5, 2013 3:53PM
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I don't believe a person on this planet truly knows why this happened...
Mar 5, 2013 3:58PM
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Actually, it is a good day to SELL stock.
Mar 5, 2013 4:10PM
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The stock market should be in record territory with all the stimulus money pumped into it for the last few years. Just wish some of that money would trickle down to main street U.S.A. WAIT trickle down I have heard that before, didn't work with cutting the taxes on the top wage earners to produce jobs(Reps plan). So now we are going to try to trickle down from the financial and investment sector and the largest companies owned by the same wealthy individuals( Dems plan). Some one is getting rich, but where are the good jobs? Are both parties owned by the same group of people? 17 days till ?    

Mar 5, 2013 3:55PM
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Greetings,
     So the stock market is now above what it was in 2007.  Factor in inflation, and we are not "at an all time high".
                 Have a nice day.
Mar 5, 2013 4:36PM
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POP, goes the bubble.  It's not IF, but WHEN. 
Mar 5, 2013 4:11PM
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The market has reached an all time high because Helicopter Ben keeps printing fiat currency.

A share of stock is work more because Ben has printed 61% more money (as measured by M2).

Of course, companies will continue to slash costs as indicated by all the recent layoff announcements.  

ttttttttttttttttttttttt
Mar 5, 2013 4:43PM
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You'll see A correction ,or a down turn in the next few days.Might go down to 13600-13900.

 Ya heard it here first.The reason people taking profits.

Mar 5, 2013 4:37PM
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This is easy, just manipulate the news plus find the way to fool people and that's it . they play of fool . just watch how it crash on the next few days , but one smart **** got your money.
Mar 5, 2013 5:10PM
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Wow, and I thought we had our heads buried in the sand back when Bush was Prez.  This "growth" economy of Obama's just shows that Dems have their heads buried so far in the sand you could put a beach umbrella in their butt cracks.
Mar 5, 2013 5:04PM
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 INFLATION...that is why the Dow hit an "all time high." The price of Gold in Oct 2007 was under $800 an ounce, it is currently above $1,550. If this was a real benchmark that was achieved, don't you think our nation would be a bit more excited?

Mar 5, 2013 5:16PM
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Definitely Market Manipulation going on...... on the backs of middle class tax payers.  I would like know how many washington DC folks are doing their legal inside trading and selling which is illegal for the common folks.
Mar 5, 2013 6:13PM
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The old saying fool me once shame on you, fool me twice shame on me applies here. When Americans lost 50%  of our retirement plans in 2009, many people pulled out of those investment vehicles.  (They may have lost money by not staying in and selling now, but they also stopped contributing to their retirement plans and started putting their money into banks) Currently US personal checking accounts hold the highest amount of cash since they started tracking the data.

 

 A Free Market produces products and services that have value. A Free Market shouldn't give a rats **** about what the Fed does, unless it is no longer free and being manipulated by government.

U.S. Department of Labor Announces $5.2 Million Grant to Assist Eastern Kentucky Coal Miners, Spouses Affected by Layoffs

 

Let's test the strength of our currency. America go to your banks and pull out all your money. If the market goes down, then your money has value, and banks should pay interest accordingly. Currently they pay almost zero on your money.

 

If the market continues to go up, then you know your money is worthless. The Fed & Government has created a currency bubble, and will print more to keep the people down and the bubble floating. No goods or services to back up the currency, just printing presses, and press announcements citing how glorious our leaders are.

 

The Rich will get much richer and the middle class will become poorer. Just like our friends have become poorer in Europe.  

 

 

 

 

 

 

Mar 5, 2013 4:11PM
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Don't even have to read the article...It's because the government has decided on some spending cuts.  By default, however.
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The higher something goes the farther it has to fall. Stay away from stocks or you will lose everything.
Mar 5, 2013 4:38PM
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john odd owl you are clueless why did you even comment, there is alot more ahead that is not going to be smooth sailing, and if you are gauging obamas economic success on the stock market that just proves you shouldnt be commenting.
Mar 5, 2013 4:52PM
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These numbers are being created out of nothing to pay for the money that this private company (a.k.a. Federal Reserve) printed out of nothing. So when the bubble burst, that means the transaction or the transfer just went through.

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