Week Ended March 1, 2013

Week Ended March 8, 2013

Dow moves into record territory on positive economic signals

The Dow moved into record territory on Tuesday, surpassing both the closing and intraday highs it had established in October 2007, and maintained its momentum through the rest of the week. The Dow's achievement followed those of the S&P MidCap 400 as well as the small-cap focused Russell 2000, which established new highs last year.

Milestone comes with caveats

The market milestone came with caveats, however. The S&P 500 remains roughly 1.6% below its intraday high in 2007, and the technology-heavy Nasdaq is still roughly one-third below the level it reached in 2000 during what is widely recognized as the "tech bubble." The major averages also remain more than 10% below their peaks once inflation is accounted for—but much nearer prior records on a total return basis that accounts for both dividends and inflation.

Labor market hopes boost sentiment

Hopes for the labor market provided much of the impetus for the market's climb to record territory. A favorable private payrolls survey report released Wednesday raised hopes that hiring had accelerated in February. These hopes were confirmed on Friday, when the Labor Department announced that employers had added 236,000 jobs, helping bring the unemployment down to 7.7%, its lowest level in four years.

Investors hope for better news from Washington

Better news from Washington may have helped boost sentiment as well. The level of partisan rancor appeared to diminish a bit, as the President and Congressional Republicans met on two occasions. Hopes are growing that part of the spending cuts that went into effect on March 1 will be rolled back if both parties can reach a deal on longer-term fiscal changes.

Valuations remain key to long-term performance

While economic data and other types of "news flow" can drive markets over the short term, valuations are a key driver of future equity returns. Scott Berg, a manager of global portfolios at T. Rowe Price, notes that while earnings estimates for 2013 are probably too optimistic, equity valuations around the world are still generally reasonable. The current high yields offered by equities (versus bonds) provide a positive backdrop—dividend yields rising above long bond yields have historically been indicative of equity market strength.

U.S. Stocks1

Index2

Friday's Close

Week's Change

% Change
Year-to-Date

DJIA

14397.07

307.41

9.87%

S&P 500

1551.18

32.97

8.76%

NASDAQ Composite

3244.37

74.63

7.45%

S&P MidCap 400

1130.92

32.39

10.83%

Russell 2000

942.44

27.40

10.96%

This chart is for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results.

1Source of data Reuters, obtained through Yahoo! Finance Closing data as of 4 p.m. ET.

2The Dow Jones Industrial Average and the Standard & Poor's 500 Stock Index of blue chip stocks, the Standard & Poor's MidCap 400 Index, and the Russell 2000 Index are unmanaged indexes representing various segments by market capitalization of the U.S. equity markets. The Nasdaq Composite is an unmanaged index representing the companies traded on the Nasdaq stock market and the National Market System.