It was reported on February 28, 2012 that the Dow Jones Industrial Average, also called the Industrial Average, or simply the Dow, exceeded 13,000 by 5.12 points, with one last trade for Johnson & Johnson helping it reach that level. This is the first time since May 2008, right before the market crashed, that the Dow has closed above 13,000.
The Dow is an average of the 30 highest stock trade prices in a day. It is not the most accurate stock market index, but it is the oldest and the most prestigious. The average can be affected by anything that changes the stock market, such as natural disasters, political movements, economic downturns and other variables. Most analysts consider it a good indication of a country’s future economic health.
The Dow has been flirting with 13,000 since the beginning of the year, sometimes passing 13,000 and then receding before the close of the day. The 28th was the first time that the Dow managed to close with the number still above 13,000.
Economy specialists see this as a very positive occurrence.
“The stock market is an indicator of the future profits of the economy,” said Paul Beaumont, a professor of Socioeconomics with an emphasis in Financial Economics and Financial Mathematics at Florida State University. “It is more of a forward indicator than a current indicator. The stock market falls before the recession starts and recovers before the recession ends.”
The fact that the stock market is slowly but surely rising back to where it was before the recession is a good indication that the economy will follow that trend. With that thought in mind, many people have become excited at the news.
“I think it’s pretty cool,” said Chloe Seigler, a Communications Sciences and Disorders major at Florida State University. “It will definitely give hope to Americans. It will probably inspire people to invest more and perhaps start new businesses.”
The Dow closing higher than it has in four years can have several possible future implications. With a sign that the economy is recovering, it is possible that people will again become confident in the overall stability of the economy. They might start putting money towards possible ventures instead of sitting on it and fearing that it would be lost.
“People will start investing again,” said Beaumont. “It isn’t great out there, but we have at least turned the corner.”
More money being invested and circulated is a good thing, but even with the exciting news, people should still act with caution.
“I would probably wait it out a little bit more,” said Olivia Richards, an Exercise Science major at Florida State University. “I would track it and see for sure that it will consistently do better before I would invest.”
The recession caused a lot of damage and it will take some time for the economy to fully recover and for people to trust in the fact that their investments will be worthwhile.
“It’s actually still down over a five-year period,” said Beaumont. “The last peak was in October 2007. Right now we are still about 600 points under that peak. It’s a long climb; the stock market lost about 45 percent of its value during the recession, and we are just now getting it back.”
While there are excited murmurs in the background, people must keep in mind that things like the Dow fluctuate, and at this point there is no telling for certain whether this is really an indication of the economy rising from the ashes.
“The more complicated answer to whether we are recovering or not in regards to the Dow rising is that the stock market fluctuates a lot, and it predicts more recessions and recoveries than actually happen,” said Beaumont. “So when it goes up we are never really confident that we are out of the woods, but it is a good sign.”