Dow Jones closes above 13, 000.

29th February 2012

Ian Copelin, Investment Director, my wealth, comments “Yesterday, the Dow Jones closed above 13,000 for the first time since 19th May 2008.  The index rose 23.61 points (0.18%) to 13,005.12 helped by better-than-estimated consumer confidence.

Yesterday’s rise takes this month’s rally in the Dow to 372.21 points (2.95%) and puts the index on course for a third consecutive month of gains (so far over the last three months the Dow has risen 959.44 points or 7.97%).  Since the start of the year the Dow has rallied 787.56 points (6.45%).  Investor confidence has been helped by economic data, corporate profitability, the European Central Bank’s LTRO, a Greek bailout and the Federal Reserve’s pledge to keep interest rates low to at least 2014.

However, the growth in corporate earnings has allowed the market to rise without pushing the Price/Earnings (P/E) ratio higher – a recent Bloomberg article highlighted that although the S&P500 index is back to its 2011 high, expanding earnings means that the market P/E is only 14x compared to 15.4x at the markets 2011 peak.  US corporate profits have beaten market expectations for 12 straight quarters and so far this quarter (from 9 Jan 2012) of the 464 companies in the S&P 500 that have reported earnings, 313 have beat expectations.

The US market could rally again this afternoon as Q4 2011 GDP data has just been (1.30pm) revised upwards – GDP for the last quarter of 2011 climbed at a revised 3% annual rate, compared to the 2.8% initially reported.  Given recent strong employment data, the US should see a pick-up in consumer spending, which will keep the US economy growing (the consumer accounts for about 70% of the US economy).

The FTSE-100 is currently (1.45pm) unchanged on the day at 5,928.”