Putting an end to the extremely palpable anticipation of the past few days, the Dow Jones Industrial Average hit its all-time high on Tuesday, closing up 0.89 percent to 14,253.77. It traded as high as 14,286.37 at one point earlier in the session.
There is no question that the news is welcomed on Wall Street, but the general tenor of the overall reaction by media and market experts, however optimistic, have always been suffused with some sort of caveat, or set of caveats. A brief overview of some of what was said after the market close should suffice to make the point.
Jeff Cox of CNBC captured the overall mood that seems to be permeating the commentary: “No confetti, no party hats, no champagne-the new record high for the Dow industrials came and went Tuesday with a minimal amount of celebration as investors prepared for what’s to come.”
And why? For a simple reason that seems as though it is and has been echoing throughout the media cycle recently, “because history strongly suggests that a bull market with so much gray in its beard not only will take a rest but also should have a seat”.
For all that, Cox seems to lean towards the optimistic end of the spectrum. The general thrust of this article appears to be that we are in for a retreat, but one that will be part of a constructive trend, in which the coming downturn will be compensated for by another upswing. He quotes Bespoke Investment Group’s Paul Hickey who is quite succinct about this view: “We are still bullish on the market for the rest of the year, but don't expect the increase to come in a straight line”.
Still, it is telling that he cannot make this point without citing the potential and very plausible setbacks such as Europe’s sovereign debt crisis reasserting itself and budget cuts resulting from sequestration. Perhaps more importantly, there is always the elephant in the room, in the form of the Federal Reserve’s monetary policy, which has been responsible for the vital injection of liquidity into the markets.
And this brings us to the more pessimistic end of today’s commentary. Take for instance, Stan Druckenmiller, the storied hedge fund manager, who appeared on television today to put a sharper edge on the less desirable possible outcomes of this situation: “the party is going on, and money is being pumped in… I don’t know when it’s going to end, but my guess is it’s going to end very badly”.
Michael Santoli of Yahoo! Finance also echoed this sentiment, calling the Dow milestone a culmination rather than a starting-point. Here, the caveats are laid out less ambiguously than Cox’s piece, and with more elaboration than Druckenmiller. The article cites the divergence between Wall Street and the broad public, who feel as though Tuesday’s record-making day, “is itself a divergence from the dominant economic story of the moment…a slack job market, a stalled American growth engine, government-deficit alarmism and a broken promise of ever-advancing generational prosperity. The tone of mainstream commentary about the Dow setting a new…suggests the market’s bounty is unearned, artificial or perverse in the face of a downbeat societal mood.”
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