NEW YORK — The stock market is back.
Five and a half years after the start of a frightening drop that erased $11 trillion from stock portfolios and made investors despair of ever getting their money back, the Dow Jones industrial average has regained all the losses suffered during the Great Recession and reached a new high. The blue-chip index rose 125.95 points Tuesday and closed at 14,253.77, topping the previous record of 14,164.53 on Oct. 9, 2007, by 89.24 points.
"It signals that things are getting back to normal," says Nicolas Colas, chief market strategist at BNY ConvergEx, a brokerage. "Unemployment is too high, economic growth too sluggish, but stocks are anticipating improvement."
The new record suggests that investors who did not panic and sell their stocks in the 2008-2009 financial crisis have fully recovered. Those who have reinvested dividends or added to their holdings have done even better. Since bottoming at 6,547.05 on March 9, 2009, the Dow has risen 7,706.72 points or 118 percent.
The Dow record does not include the impact of inflation. Adjusted for that, the Dow would have to reach 15,502 to match its old record.
The Standard and Poor's 500, a broader index, closed at 1,539.79, 25.36 points from its record.
The last time the Dow was this high, George W. Bush still had another year as president, Apple had just sold its first iPhone, and Lehman Brothers was still in business.
But unemployment was also 4.7 percent versus 7.9 percent today, a reminder that stock gains have proved no elixir for the economy.
Still, the Dow high is another sign that the nation is slowly healing after the worst recession since the 1930s. It comes as car sales are at a five-year high, home prices are rising, and U.S. companies continue to report big profits.
The stock gains have helped retirement and brokerage accounts held by many Americans recover. That, in turn, has helped push U.S. household wealth nearly back to its peak before the recession, though many in the middle class are still deep in the hole. Most middle-class wealth is tied up in home values, which are still a third below their peak.
Good economic news Tuesday helped lift stocks. Retail sales in the 17 European countries that use the euro rose faster than expected, China's government said it would support ambitious growth targets, and a report showed U.S. service companies grew last month at their fastest pace in a year.
"It feels great," says Marty Leclerc, chief investment officer at Barrack Yard Advisors, an investment firm. In early 2009, when stocks were plummeting, "it looked like Armageddon was nigh. It's a lot more fun to be in a rising market."
In the depths of the recession four years ago, few investors would have predicted such a fast recovery. Some feared another Great Depression. Banks were collapsing, lending was frozen, world trade was plunging, and stocks were in free fall.
"People thought we were going to relive the 1930s," says Robert Buckland, chief global stock strategist at Citigroup. He calls the stock gains since "pretty remarkable."
From its peak in October 2007 to its bottom in March 2009, the Dow fell 54 percent. That was far less than the nearly 90 percent drop in the Great Depression but scary nonetheless. There had been 11 previous bear markets since World War II and none had reached 50 percent.
One man who stayed calm and didn't sell was Jay Sachs, 70, a retired computer consultant. In fact, as others scrambled to exit stocks in late 2008, he plunged in more — scooping up drug maker Ely Lilly and Co., health-care products giant Johnson & Johnson and food company General Mills.
"You have to be greedy when others are fearful," he says, quoting a famous line from billionaire Warren Buffett, who also bought in the panic. Sachs adds, "People are still fearful and that's a good sign. There's room for growth."
He says his portfolio has doubled in value in four years.
As stock rebounds go, this has been an unusually quiet and uncelebrated one. Typically, bull markets are accompanied by rising trading volume, a surge in young companies going public and Internet chatter over hot stocks.
The past four years, none of that has happened.
Adding to the chastened mood is lingering fear among many investors that stock gains can disappear in a flash. Burned by two stock-market crashes in less than a decade, Americans have sold more U.S. stocks than they've bought the past four years, nearly unprecedented in a bull market since World War II.
In this run-up, nearly all the buying has come from companies repurchasing their own stock in an effort to boost its value. Companies in the S&P 500 have bought $1.5 trillion since the Great Recession began in December 2007.
Dow records are dismissed by some investors as unimportant because the index comprises just 30 stocks. Many professional investors prefer to follow the S&P 500, which, as the name implies, tracks 500 companies. But the Dow has closely followed the ups and downs of its broader rival over the years, and is a good proxy for how big companies are doing.
The S&P 500 is up 128 percent from its March 9, 2009 low, about the same as the Dow.
The Dow record is a victory of sorts for Federal Reserve Chairman Ben Bernanke. Under his aegis, the Fed launched an unprecedented campaign to lift stocks by making their chief rival for investor money — bonds — less attractive.
Under a program called "quantitative easing," the Fed has bought trillions of dollars of bonds to drive their yields down. The idea was that the puny yields would so frustrate investors, they'd have no choice but to shift into stocks. That, in turn, would push up stocks and make people feel wealthier and more willing to spend, helping the economy.
Just as Bernanke had hoped, American household wealth, or assets minus liabilities, has risen, though the gains haven't been shared equally.
In the recession, household wealth fell $18.9 trillion, or 28 percent, as the prices of assets like stocks and homes tumbled. But after bottoming in the first quarter of 2009 at $48.5 trillion, wealth rose $16 trillion through the third quarter of last year and was within striking distance of its peak of $67.4 trillion, according to the latest data from the Federal Reserve. Gains since then may have pushed wealth to a new high.
Middle-class households have not recovered as much as those numbers suggest because most of their wealth is tied up in their homes, and home values haven't bounced back like 401(k) accounts.
Homes accounted for two-thirds of middle-class assets before the recession, estimates economist Edward Wolff of New York University. By contrast, they accounted for one-third of assets of all U.S. households. Stocks were 7 percent of middle-class assets, less than half the percentage for all.
The rich have been the biggest winners of this bull market. Eighty percent of all stocks are held by the wealthiest 10 percent of households.
To stock bulls, the economy is on the verge of what Bernanke calls "escape velocity," a self-sustaining pace of growth and better than the sluggish 1-2.5 percent of the past three years. Faster economic growth would boost corporate earnings, which would lead to higher stock prices.
Of course, if investing was as simple as looking up interest rates and stock valuations, we'd all be rich. Plenty can go wrong.
Before the market fell
Remember the world on Oct. 9, 2007? That was when the Dow Jones industrial average last set a record high.
The Dow, a stock index that is followed as a gauge for the rest of the market, hit its highest close, 14,253.77, on Tuesday. Compare that with the day five years, four months, three weeks and six days ago, when it set its previous high of 14,164.53, and my, how things have changed.
OCCUPY WHAT STREET?
Back then, Bear Stearns still existed. So did Lehman Brothers, Wachovia and Washington Mutual. Fannie Mae and Freddie Mac were just mortgage lenders, not wards of the government. Far fewer people knew what it felt like to have their fortunes undone by a worldwide meltdown.
The vitriol against the banking industry was still pretty tame. "Occupy Wall Street" wasn't a thing. Mitt Romney, making a run for president, was criticized more for being a Mormon than for being a rich financier.
A "London whale" meant a whale from London, not the trader who caused a surprise $6 billion loss at JPMorgan Chase in 2012. TARP was something you used to cover a lawnmower. Now it's the Troubled Asset Relief Program, which the government used to bail out banks, carmakers and insurers, beginning in 2008.
Nobody outside Alaska had heard of Sarah Palin. Steve Carell was still on "The Office," and it was still funny. Barry Bonds was still a home run champion, not a convicted felon in a steroids case. The first iPhone was new on the market, and the top-selling phone in the U.S. was the Motorola Razr.
A FILL-UP FELT LESS LIKE A STICK-UP
In October 2007, gas cost $2.77 a gallon. The average had never soared to more than $4, as it would the following summer. It's now about $3.74.
This was when jobs were easier to come by. The unemployment rate was 4.7 percent. Nearly a quarter century had passed since it had last hit 10 percent, as it would in 2009. It's now at 7.9 percent, well above the desired rate of around 5 percent.
HOMES WERE STILL SWEET
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This was when Americans took for granted the idea that housing was a good investment. The median sale price of an existing home was almost $207,000, still close to the record of $230,000, according to the National Association of Realtors. It would start falling in the summer of 2008 and crater at $156,000 in early 2011. It's now around $174,000.
TURNING POINT QUICKLY TURNED AROUND
If the 2007 record teaches anything, it's that milestones and celebrations can evaporate quickly and severely.
A month after the Oct. 9, 2007, record, the Dow had shed 8 percent of its value. A year after, it was down almost 40 percent. At its worst point in the Great Recession, in March 2009, it had dropped 54 percent from its peak to 6,547.05.