The Dow Jones Industrial Average closed above 16,000 for the first time Thursday, extending a rally that has the blue chip-index on pace for its best year in a decade. With Thursday’s gain, the Dow has advanced 22% so far this year, putting it on pace for the biggest annual rally since a 25% gain in 2003. The blue-chip index is up 144% from its 2009 low. The latest 1,000-point move in the Dow took just 139 trading days, the sixth-fastest 1,000-point gain for the Dow.
Among Dow components, Boeing Co. has led the way higher over the last 1000 points, rallying 40%, highlighting strong demand for commercial aircraft as the global economic recovery takes hold. 3M Company, meanwhile, has risen 20.6% during the same time frame.
This year, all but two of the 30 Dow stocks have gained ground this year except two: Caterpillar Inc. and International Business Machines Corp. and have declined 8.5% and 4.1%, respectively year to date.
Gains on Thursday came after Janet Yellen moved a step closer to becoming the next Federal Reserve leader and a better-than-expected report on the jobs market boosted sentiment.
Behind the broader push that took the Dow through this latest milepost: seemingly greater confidence in the stock market’s ability to withstand a scaling back by the Federal Reserve of the bond-market purchases it has been employing to stimulate the economy. More broadly, bulls point to continued expansion in the U.S. economy and recovery in corporate profits as drivers of the rally. Years of ultralow interest rates have bolstered corporate balance sheets and boards have rewarded investors by buying back stock and boosting dividends.
As such, investors are paying more for stocks relative to the underlying companies’ earnings, making it harder to argue stocks are cheap. The price to earnings ratio for the S&P 500, a broader measure of large U.S. companies’ stocks, stands at about 16.1, up from 13.7 at the start of the year but little above its 10-year average of 15.6, according to FactSet.
