Dow closes over 17,000 for first time

Written By Unknown on Jumat, 04 Juli 2014 | 20.24

3 July 2014 Last updated at 18:28

The Dow Jones Industrial Average has closed above 17,000 for the first time, buoyed by investor confidence about the global economy.

The US stock index, which is made up of some of the biggest global firms, rose 92 points to finish at 17,068.

Investors pushed shares higher after a better-than-expected jobs report showed the US economy added 288,000 jobs in June.

Overall, low interest rates have led investors to pour money into stocks.

That has pushed US indexes - including the S&P 500 - to new highs in 2014.

On Wednesday, the Dow closed at its 13th record high for the year, while the S&P 500 hit its 24th closing high for 2014.

Slow but steady

A string of positive economic news, combined with increasing merger and acquisition activity, has buoyed investor confidence on Wall Street.

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It is a big psychological boost, but how significant is it that the Dow Jones Industrial Average has finally cracked 17,000 points?

Certainly, the Dow has had an impressive run, up more than 10,000 points in just over five years.

The magical milestone is a sign that investors believe in the global economy growth story and that more gains may yet follow.

One reason some investors believe the Dow can go further is that it is up 2.9% this year. That sounds good until you compare it to the more significant S&P 500 index, which is up over 7%.

But a lot may depend on the outlook for "cheap money".

The possibility remains of a hard landing or unpleasant things happening in the economy.

So while investors may cheer the milestone, there are reasons to remain cautious.

Thursday's positive jobs figure capped a week of good reports globally, including news that China's manufacturing activity hit a six-month high in June.

"The economic data we continue to get is not exceptional, but it is still positive," Benedict Willis of Princeton Securities told the BBC from the floor of the New York Stock Exchange.

Investors had been worried that rising stock prices could not be supported by actual underlying economic growth, but Mr Willis said that as long as the data remained upbeat, that should be enough to allay concerns.

He added he expected markets would continue to rise.

"Yesterday's highs are tomorrow's lows - I think the market will continue on its upside move," he said.

Low rates

Overall, investors have been pouring money into stocks over the past year and a half, partially as a result of the policies of the Federal Reserve.

The US central bank has taken extraordinary measures to keep interest rates low, in an effort to encourage banks to lend and thus stimulate economic growth.

Low interest rates, however, have also meant that firms are less inclined to keep extra cash on hand where it is not earning money.

That has spurred increased merger and acquisition activity, with firms in the pharmaceutical, food processing, and technology industries all announcing strings of acquisitions in recent weeks.

Some have worried that in keeping rates so low, the Federal Reserve is encouraging a bubble in the stock market.

However on Wednesday, Fed chair Janet Yellen said in a speech in front of the International Monetary Fund that the central bank would not raise rates in an effort to deter financial excesses.

"Efforts to promote financial stability through adjustments in interest rates would increase the volatility of inflation and employment," she said.


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