Global headwinds no match for Dow's 18000 milestone – Economic Times

By Joseph Ciolli & Callie Bost

NEW YORK: The Dow’s march to the 18000 level had to overcome a long lineup of obstacles this year. None of them was a match against the Federal Reserve and the US economy. The Dow Jones Industrial Average rose 5.6 per cent over the past five days for the biggest rally since 2011, climbing to 18024.17 on Tuesday, as the central bank pledged patience in raising interest rates, while data showed the economy roared the most in the third quarter since 2003. A measure of expected volatility in the Dow has fallen the most in three years during the recent rally.

US equities faced upheavals in 2014 that threatened to derail a bull market in its sixth year, ranging from violence in the Ukraine to an Ebola outbreak and a bear market in oil prices. Yet the Dow’s worst retreat was only 7 per cent, and the gauge recovered from each decline in about two months. “Things have been getting better for five years,” John Fox, director of research at Fenimore Asset Management in Cobleskill, New York, said. “Corporate America is doing fantastic, earnings are at an all time high, interest rates are low, inflation is low, and now you have the added positive of low gasoline prices. All of that adds up to a pretty good environment for equities.”

It’s been 172 days since the Dow closed above 17000 on July 3, data compiled by Bloomberg show. That’s the fifth-fastest trip between thousands, with the record being 35 days to 11000 in May 1999. It took the index almost 5,200 days to go from 1000 to 2000 between 1972 and 1987, according to Howard Silverblatt, an index analyst at New York-based S&P Dow Jones Indices.

The Dow closed at a six-month low on Oct 16 before rallying more than 1882 points, or 12 per cent, to top 18000. The Chicago Board Options Exchange Dow Jones Industrial Average (INDU) Volatility Index, a measure of demand for options on the blue-chip stocks gauge, has bounced back after two jumps of more than 70 per cent since September. The industrial average has risen about 175 per cent during the bull market that began in March 2009, propelled by better-than-estimated corporate results and three rounds of Fed bond purchases.

The Standard & Poor’s 500 Index has more than tripled in that time. It rose 0.2 per cent on Tuesday to finish at an all-time high. Throughout 2014, the Dow has shown an ability to bounce back from selloffs driven by macroeconomic events. This is the 36th time this year the Dow has closed at an all-time high. The Dow reached records on 52 occasions in 2013, as the index recovered from the financial crisis to top its previous high from October 2007 for the first time. The S&P 500 (SPX) has set records on 51 days this year. The Dow’s rise has been aided by better-than-forecast economic data and corporate earnings that beat analyst forecasts.

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