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.
A major part of the reason, I think, is the fact that there is a lot of cash–corporate, pension fund, and personal–sitting on the sidelines right now. The uncertainties regarding Europe, ObamaCare, Syria, etc., are making companies reluctant to put that capital into expansion.
But the usual places to invest cash, such as treasuries or CD’s, are paying practically nothing right now, with the Fed keeping interest rates at records lows. Even ten-year treasuries are paying a dismal 1.72 percent, treasury bills, which mature in less than a year, far less than that. So the only game in town is the stock market and money has been pouring into Wall Street, sending the markets up and that, of course, becomes self-re-enforcing.
Will it last? That depends on the outcome of the various uncertainties.