The Dow Jones Industrial Average hit 15,000 this morning, the first time it has crossed that benchmark. Even if it backs off and closes below that level, this is a remarkable recovery from its Great Recession low in March 2009, when it hit 6,626. In the last four years the Dow has risen 123 percent.
How do we square such a bull market with the anemic recovery I noted earlier today and the long period of sub-par growth that Pete Wehner referred to? To be sure, the stock market is a leading indicator, recovering sooner than the economy as a whole, whereas unemployment is a lagging indicator. But it takes more than that to explain things.
If the stock market is truly a leading indicator (and it tends to be one of the more reliable ones), then the Obama campaign had better start worrying. May has been a brutal month for the Dow. It closed May 1 at 13,279. As it approached noon today, it’s at 12,360, down 59 on the day. That’s a decline of 7.1 percent for the month, wiping out all the gains since Jan. 1.
The reasons, of course, are not hard to find: the crisis in Europe, lackluster economic data in general, a sharp drop in consumer confidence in May, an uptick in weekly jobless claims, and more.
Perhaps the biggest news is the drop in bond rates. The benchmark ten-year treasury bond is currently yielding 1.53 percent. On July 1 last year, the ten-year treasury was yielding 3.2 percent, more than twice as much. This is good news and bad news. The good news is that the federal government can finance its huge deficits more easily (and consumers can borrow more cheaply as well: mortgage rates are at near record lows). But the bad news is that bond yields go down for two reasons: a slowing economy and/or a financial crisis. As nervous investors seek safe haven, demand for treasuries rises, pushing down yields. (French and German bond rates are also very low for the same reason, yielding 2.35 percent and an astonishing 1.24 percent respectively.)