Know who seemed to enjoy the State of the Union address? The stock market. On Wednesday, the Dow inched above 12,000, a level last seen in June 2008. Maybe investors were cheering the President’s pep talk on “winning the future.” More likely, they dig that chatter about lower corporate tax rates. Even more likely, hard-core data, not the Obama’s dialogue, put the market in a good mood: new-home sales jumped 17.5% compared with the prior month.
Considering that the Dow was at around 6,500 in March 2009, the market’s rally is quite remarkable. As Mark Hulbert notes in Marketwatch: “There are very few other times in U.S. stock market history during which the Dow has risen so far in so short a time. Since the Great Depression, in fact, there has been only one other occasion when the Dow – in an interval of 23 months – performed better than it has since the March 2009 low. That was during 1986 and 1987, the period leading up to the August 1987 stock market high.”
Of course, the market then crashed two months later. While another cataclysmic event seems unlikely, as Jonathan Cheng points out in WSJ.com, “the bull market’s reliance on the Fed, however, has some investors questioning the durability of the rally.” The 2009 fiscal stimulus helped lift both the economy and market from the bottom, and the recent monetary stimulus – in the form of the Fed’s massive Treasury bond purchases – could be temporarily inflating the good vibe about the future, and masking more dour economic fundamentals. “I’m happy, but I’m also worried,” Barbara Marcin, portfolio manager of Gabelli Blue Chip Value Fund, told Cheng. “I think we have some very difficult choices to make in the next year or two that’s not being reflected in anyone’s speeches or rhetoric. I don’t see the rally as being very firm because we’re taking away a lot of the stimulus.”
So toast 12,000, today. But it’s far too early to get used to it.