Dow Jones hits historic high

Wall Street has hit a historic high with the Dow Jones surging to close at 14,523 yesterday and beating its previous peak, which was before the global financial crisis.

It was the highest the market has ever been, up on its previous high of 14,087 recorded back in October 2007.

Stocks are expected to continue to post gains and economists say the surge will have a positive impact on Australia’s economy.

Paul Bloxham, chief economist at HSBC, told SmartCompany the record high has been driven by two key factors.

“First is the private sector is starting to improve in the US and the second is that monetary policy is very loose and is supplying more support for the economy and the equity market,” he says.

“There is more upside risk for the US economy than there is downside risk, the challenges remain fiscal challenges and can the government sort itself out enough to get out of the way to let private sector improve.”

Bloxham says Wall Street’s recovery is likely to have a positive impact on Australia’s economy and SMEs.

“We are a small, open economy tied to global conditions so it’s a good news story,” he says.

“It’s a more positive environment so global sentiment is good for local small business; one of the things constraining businesses getting involved and getting finance is negative sentiment.”

CommSec chief economist Craig James also believes Wall Street’s bull run is significant.

“It has solid underpinnings, some will claim it is all due to policy with interest rates at zero and the government effectively printing money through quantitative easing, but you have basically seen the same growth in profits as the index, it is well supported,” he says.

“Looking ahead the sequester is going to slow growth to some extent and that could affect earnings but the housing market and export markets continue to perform.”

James says there needs to be a period of consolidation in the United States but the Australian stock market is likely to also soar.

“For Australia, I think our market will continue to rise, the most important thing is to look at total returns rather than the all ordinaries, as we place greater emphasis on dividends. So I think in the next couple of weeks our market will reach record highs on the accumulation index,” he says.

James says Wall Street’s record high signals the US financial market is back and, with less risk globally, that should provide confidence for SMEs to move ahead in Australia “rather than sitting on their hands”.

“Confidence has been the key missing ingredient in our economy; you have plenty of stimulus but nobody has been willing to embrace that stimulus,” he says.

The Australian S&P/ASX200 hit an all-time high of 6829 points in November 2007. Yesterday, it closed at 5116.

This piece has been adapted from one first posted at LeadingCompany’s sister site, SmartCompany.

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