SALT LAKE CITY — Just a few years ago, the U.S. economy was at one of the lowest points in history with double digit unemployment and falling market conditions that left many wondering if it would ever recover.
Well, according to some analysts, the answer is a resounding “yes.”
It took more than five years, but it now appears that the stock market is poised to climb to a new all-time high. In October 2007, both the Dow Jones Industrial Average and the Standard & Poor’s 500 hit their historic record highs of 14,164 and 1,565 respectively. Both are currently within percentage points of their historic highs.
"We’ve come a long way in what seems like a relatively short period of time,” said Jason Ware, market strategist with Albion Financial Group, a Salt Lake City-based money management firm. “It wasn’t that long ago that we were all concerned about American capitalism. (This) would be a very important milestone to hit.”
The Dow Jones Industrial Average is a stock market index created by Wall Street Journal editor and Dow Jones & Co. co-founder Charles Dow. The average is named after Dow and one of his business associates, statistician Edward Jones.
Founded in May 1896, the index shows how 30 large, publicly-owned companies based in the United States have traded during a standard trading session in the stock market.
The S&P 500 is an index based on the market values of 500 leading companies that are publicly traded on the U.S. stock market as determined by financial services firm Standard & Poor's. The S&P 500 index — which began in its present form in March 1957 — is widely employed as a measure of the general level of stock prices.
The Dow index closed at a 12-year low of 6,547 on March 9, 2009, after an intra-day low of 6,470 during the March 6 session. On the same day, the S&P index fell to a nearly 13-year closing low at 677.
As the indexes approach their respective record-high levels, Ware said the milestone should indicate a strengthening economy after several years of recessionary struggle.
“We seen a lot of improvement in corporate profitability,” he said. “But individual investors are not quite sure this (improvement) is real.”
He said because of the economic uncertainly of the past few years, some people have been reluctant to participate in the recent growth in the stock market, but that could change when they realize how strongly the market has recovered.
“There has been a lot of doubt and a lot of naysayers concerning the economy,” Ware said. “But if you look at the underlying economic data, it looks pretty encouraging.”
He added, ”Things are much better than they were four years ago.”
He said because the stock market “is healthier now,” there is reason to believe that the nation should begin to experience a period of “sustained economic growth” over the next few years.
One of the main implications to the overall economy will be that the market will begin expanding, which could boost fortunes on many fronts, said Mike Cooper, David Eccles professor of finance at the University of Utah.
“When the market goes up, economic sentiment goes up,” he explained. “We then usually see that firms in the U.S. economy start to invest more and start to grow more — which usually means more jobs.”
He said that historically as the stock market has offered higher returns, corporate investment increases as they add “new factories, plants and employees.”
Overall, Cooper said, the milestone would likely have a positive impact on the national economy.
“When market volatility is low, there is not a lot of uncertainty,” he explained. “People are feeling better, sentiment is up … so all these things bode well for economic growth.”