In a reminder that even the most terrifying periods in the stock market eventually heal and are replaced by periods of delectable gains, the S&P 500 has climbed 195.6 percent since early 2009. That's when the worst bear market since the Great Depression ended after about 11/2 years of collapsing financial companies and severe recession.
This year, as the economy continues to recover from those scars, the index, made up of 500 large U.S. stocks, has climbed 8.2 percent. That's on top of last year's 30 percent gain.
But does Tuesday's historic 2,000 stock market milestone matter?
In a sense it matters because the all-time high of Tuesday will be tracked by market historians and analysts calibrating the direction of stocks from this day forward. But that doesn't mean 2,000, and the gains the S&P 500 has plopped into 401(k) plans and other accounts over the last 5 1/2 years, are for keeps.
"It's certainly a milestone," said
In other words, while a 21st birthday may matter to a teenager looking forward to passage into adulthood, at age 40 it probably means little. Ablin notes that the last major milestone for the S&P 500 came in
The chances are you don't remember it. Yet for those who celebrated the milestone in 1998, a valuable lesson followed a couple of years later: Milestones aren't promises for the future.
While the S&P hit the 1,000 mark in 1998 and climbed 27 percent that year and 19.5 percent the next amid investor infatuation with Internet stocks, the index plunged below the 1,000 level in
Then, after recovering from that trauma and delighting investors in the mid-2000s, the S&P 500 again fell below 1,000 in
The S&P 500's new record undoubtedly will be soothing to investors.
But momentum is no guarantee. Stock markets tend to go through corrections, or downturns ranging from 10 to 20 percent, about once a year when overoptimism has carried stocks to prices that are extreme and need to come down a bit, or "correct." Bear markets, which on average inflict losses of 35 percent, happen about every four years on average -- usually when the economy is going through a recession.
Since the old pros in the market know milestones alone mean little, they start looking over their shoulders for risks when the stock market is providing happy days continually.
"Trend strength can be looked at as another sign of extreme optimism, and could be a warning for those arriving late to the party to be cautious," he said.
That doesn't mean he's expecting any severe losses for investors.
Further, analysts don't see the outrageous valuations on stocks now that prompted the tech wreck. In early 1998, the price of S&P 500 stocks was about 23 times the earnings companies were expected to produce over the next 12 months. Stocks now are somewhat pricey at 15.5 times expected earnings, but they are not severely expensive compared with a 10-year average price of 14 times earnings.
Investors in early July became concerned about sectors of the market that seemed excessively pricey, particularly small-company stocks and biotechnology.
That squeamishness, combined with geopolitical concerns about
"Investors appear to be recommitting to equities" after some nervousness in July over pricey stocks and geopolitical risks, said
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