On Tuesday, the Dow Jones Industrial Average closed at an all-time high, 14,253.77, surpassing the index’s previous closing high set back in 2007. This benchmark has more than doubled since its low in 2009, during the financial crisis.
When people talk about “the market” being up or down on a given day, they’re often talking about a stock market index, and that index is often the Dow. For more on what these indexes are and how they work, read our rundown on understanding stock market indexes.
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Why’s the Dow So High?
As with many things, there are lots of different views: Some investors think this is a sign that we’re in a new bull market, which basically just means the market is looking up (when the market has a negative outlook, it’s called a bear market). Meanwhile, other investors think this isn’t the beginning of a new bull market, but rather the winding-down of a long-term bull market on its last legs.
Something that might make this new high different from past ones? The government’s intervention.
Since the recession, the Federal Reserve has been engaging in what’s called “quantitative easing,” which involves the government buying bonds, Treasury bills and other securities with money that wasn’t previously in circulation—essentially pumping new money into the economy. All told, the Fed has pumped hundreds of billions of dollars into the bond market. For a full explanation of what that is and how it works, check out our cheat sheet to quantitative easing.
As of Fed Chairman Ben Bernanke’s speech last week, there appears to be no indication that the Fed will retire quantitative easing anytime soon.
Will the Dow’s Record High Last?
The short answer: No one knows.
Optimists say the recession is finally lifting and we’re reaping the rewards. Plus, with the Fed’s monetary policies, markets have a big boon going forward. Pessimists point to factors that could weigh down the stock market, like the impact of the U.S. government’s spending cuts, the continuing crisis in Europe, uncertain economic growth in China, and even terrorism and Middle East tensions.
Should You Buy Right Now?
Historically speaking, investors tend to buy high and sell low. As seen by the fact that today’s market has kept going up, up and up, investors like to buy when things are already on an upswing. More than anything, avoid making an emotional decision on a day when the market is roaring fiercely. If you plan to invest, do so with a long-term outlook, rather than jumping on the bandwagon one day and getting upset if your portfolio drops the next.
Update, Wednesday, March 6, 2013: This story was updated to reflect that the Dow closed at an all-time high by end of day Tuesday.