It was — surprise — a very good year for markets
The Dow Jones industrial average finished the year at an all-time record high, even adjusting for inflation.
The Dow is the most widely watched measure of American economic vitality. It has also become something of a boogeyman in the debate over income inequality — its rise a supposed symbol of the rich getting richer while everyone else struggles. Keep in mind, though, that while stock ownership has declined since the start of the Great Recession, about half of Americans do have investments in the market.
With its strong performance in 2013, the nation’s leading market indicator overcame demons that have bedeviled business and consumer confidence in recent times.
Consider the challenges of the last 14 years, since the Dow hit the previous inflation-adjusted high on Jan. 14, 2000: the bursting of the Internet bubble in 2000, the Sept. 11 terrorist attacks, the housing bust, a near-meltdown of the economy in 2008-09, the Great Recession and lingering hangover, high unemployment and year after year of political gridlock in Washington.
Yet the Dow chalked up a 26 percent gain in 2013. Sure, that could reflect irrational exuberance, to recall former Fed Chairman Alan Greenspan’s famous expression in 1996 of his concern that investor enthusiasm was outpacing market fundamentals. (The Dow then was lower than 6,500. It closed Tuesday at 16,576.) It certainly has been fueled by the Fed’s gaudy bond-buying stimulus effort.
But it does reflect some, we’ll go out on a limb here, genuine reason for confidence.
The nation’s gross domestic product, the broadest measure of economic growth, slogged along at 2 percent in 2012, but has risen each quarter in 2013 and hit an impressive (long time since anyone has used that word) 4.1 percent in the third quarter. Inflation has purred. Corporate profits have soared to $1.9 trillion as of the third quarter, almost triple the profits booked the same quarter five years ago. Housing starts and existing home sales have rebounded in most of the country. The nation’s unemployment rate stood at 7.0 percent in November, down from 7.8 percent in November 2012 and the lowest since November 2008.
There are signs that other world economies may be less of a drag on the U.S. During the 14 years since the Dow’s last year-end high, markets around the world have advanced as free enterprise and international competition have flourished. The World Federation of Exchanges pegs the value of listed companies on major global exchanges at a record $63.4 trillion as of November, exceeding the previous record high set in October 2007. Some of America’s top trading partners have prospered too: The German DAX stock index reached an all-time high last week, and Japan’s Nikkei shot up 57 percent in 2013.
Hundreds of millions of people have been lifted from poverty. Information technology has tied the world together to an extent that was hard to imagine 14 years ago. Yes, that international competition has put more pressure on the U.S. job market and U.S. wages, which remain flat.
No one’s saying 2014 won’t require nerves of steel. We know how vulnerable economies are to unexpected events. But after so many challenges, we can look at 2013 as a very good year.