Dow spikes to all-time record high

The Dow Jones Industrial Average powered to an all-time record high Tuesday exactly four years after hitting bottom in the worst economic crisis since the Great Depression.

After more than doubling its value in a steady march upward since March 2009, the Dow assaulted the record from the opening bell and ended the day at 14,253.77, nearly 90 points above the former closing high on October 9, 2007.

The broader index of the US markets, the S&P 500, also settled higher, but at 1,539.79 remained only 26 points shy of its record high.

It was a dramatic rebound even as the broader economy continues to struggle to leave behind the 2008-2009 recession, and the government in Washington battles over how to trim its massive deficit, a legacy of the economic crisis.

"It's been a good economy, accompanied by good earnings, coupled with very low interest rates. And no sign that it's over," said Hugh Johnson, chairman and chief investor officer at Hugh Johnson Advisers.

"And it's the only game in town," Johnson added, referring to the low returns on other investments.

The Dow, which weighs the stock prices of 30 top companies in a range of industries and has been a key gauge of health in US capital markets for 117 years, was last at these levels in October 2007, the virtual eve before a financial storm engulfed markets.

Analysts said the momentum in the markets could build further if consumers increase spending because they have greater wealth.

Colorful headlines about the stock market's record could also encourage more investors to jump into the markets.

That said, analysts differed on whether they saw stocks going much higher.

"I think the market could go up another 10 percent before the Fed gets too upset about it," said Jack Ablin, chief investment officer at BMO Private Bank.

Ablin said cheap credit was leading the market higher, not only because it reduces the appeal of bonds and other non-equity investments, but because corporates are borrowing funds cheaply to buy back stock or make acquisitions.

Greg Peterson, director of research at Ballentine Partners, said the valuation multiples of earnings were low compared with historic norms.

Peterson said the ratio of stock valuation to earnings was 12.5 at the end of 2012, compared with 15 in 2007 and 25 in 2000, when the markets hit other peaks.

"This high is imminently reasonable," Peterson said. "It's not a bubble.

But other analysts said the markets may struggle to keep the positive momentum going.

"There is not a lot enthusiasm behind this," said Mace Blicksilver of Marblehead Asset Management."If you ask individual investors they are not that excited about the stock markets."

Chris Low, chief economist at FTN Financial, said consumers will struggle in the first half of the year with higher payroll taxes and the effects of sharp government spending cuts, known as the sequester.

"It's not unusual when the Dow breaks to new levels that we get at least a couple of months of consolidation before we go up again," Low said.

The Dow's recent surge has raised new questions of whether a fresh, dangerous bubble is building in capital markets, an issue that has been debated in recent meetings of Fed policy makers.

But analysts mostly dismiss that, and describe rising, but cautious, confidence in the real economy.

Still, recent economic reports suggested the Dow was outpacing the economy.

Last week, the US Commerce Department reported that fourth-quarter economic growth came in at just 0.1 percent, while the unemployment rate has been stuck around 7.9 percent.

Some analysts saw the Dow lingering in the current range until the economy takes off with more force. Low predicted most equities would have a hard time growing revenues much beyond two percent in the near term.

"There is very low revenue growth in the S&P 500," Low said. "It is still positive, but it's not very fast."

But Paul Edelstein, an economist at IHS Global Insight, offered a more optimistic outlook.

"There's a lot of reasons for stocks to move higher" such as higher earnings and supportive Federal Reserve monetary policy, Edelstein said.