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Dow Jones and FTSE hit record highs as confidence surges
Caution warning as markets return to levels not seen since before the global financial crisis
STOCK MARKETS have surged to levels not seen since before the global financial crisis with New York's Dow Jones share index and London's FTSE 100 hitting record highs.
The Dow soared to 14,285 yesterday, exceeding the previous record of 14,198, set in October 2007. Its buoyancy is a "key milestone in the long slog to recovery from the financial crisis", the Wall Street Journal said.
The news from London was also encouraging with the FTSE 100 reaching its highest level since January 2008. The index advanced 86.32 points, or 1.4 per cent, to 6,431.95.
The BBC says investors have been spurred on by signs of recovery in the US housing market in recent months, a return of consumer confidence, and signs that corporations are beginning to invest in capital spending and hiring more staff.
The new optimism is a global phenomenon that can be traced back to China, says the Daily Telegraph's economics editor, Philip Aldrick. Chinese markets were the first to surge when Prime Minister Wen Jiabao told the Communist Party's annual congress that his successors would do whatever it takes to keep the country's growth rate at 7.5 per cent for the next five years.
But the news is good, even in the troubled Eurozone, where retail sales rose "surprisingly sharply" by 1.2 per cent instead of 0.2 per cent as forecast. Surveys of the service sector in both the UK and the US also suggested businesses were more confident than thought.
Aldrick says shares have been in strong demand this year as investors search for "returns in the face of low interest rates and quantitative easing policies". Any company that can offer a good dividend yield is particularly attractive, he says.
Not everyone is convinced that the surging Dow is a guaranteed harbinger of global recovery, however. The Financial Times' John Authers points out that "as an index of only 30 stocks, the Dow is not broadly diversified and is not representative of the US stock market as a whole". As a result it is "a fatally flawed index, and there is no reason why anyone should pay any attention to it".
That sense of caution was reflected on the floor of the New York Stock Exchange, where – "in contrast to the heady days of 2007" - the Dow's record-breaking day went "largely uncelebrated [as] traders stayed glued to their computer screens," says the Wall Street Journal. "Only a few shouts were heard, and they were nearly drowned out by the pings of computers sounding alerts and instant-message notifications." ·
