Job Creation Boosts Dow

Tuesday on Wall Street saw the Dow Jones industrial average closing at 14,253.77 – a record high since the influential stock market index closed at 14,164.53 in October 2007. While the response to the increase was one of restrained optimism, Wednesday saw the Dow breaking its previous day’s record by hitting an intraday level of 14,320.65 before closing at 14,296.24, providing investors with a reason to have a bit more confidence in a market that has been battered about since 2008. The Standard & Poor’s 500 index closed at 1,541.46 on Wednesday, with the Nasdaq Composite index closing at 3,222.36. Up to 53 percent of stocks traded on the NYSE and Nasdaq closed the day higher on Wednesday, with the average trading volume being 3.6 billion shares.

Analysts are giving credit for Wednesday’s advance to data showing private sector hiring for February to be strong, having added 198,000 jobs. Friday will see the release of the US government’s non-farm payroll report, with expectations being that the economy will have created up to 160,000 jobs in February, with the unemployment rate holding at 7.9 percent. Whether these expectations are met will no doubt have a significant effect on markets.

The Federal Reserve’s Beige Book offers a cautionary tale however, as it reveals that economic expansion is taking place at a modest pace, and there are concerns regarding the effect new tax hikes will have on consumer spending. So, while investors may see the recent bullish market activity as a reason to jump into the market, there are a host of unresolved issues that can impact negatively, and swiftly, on markets. One example of this is that the last time the Dow was at the level it is currently experiencing (October 2007), the size of the Federal Reserve’s Balance Sheet was $0.89 trillion, whereas it now stands at $3.01 trillion. At that time the number of Americans relying on food stamps was 26.9 million, that number currently stands at 49.69 million, and the number of unemployed Americans stood at 6.7 million, whereas now it is 13.2 million. Moreover, GDP Growth in October 2007 was +2.5% and is currently 1.6% – all of which are factors that need to be considered before concluding markets are back at the level they enjoyed in October 2007.