(MoneyWatch) After springing forward with our clocks, the big question for investors is whether stocks can continue to spring forward after a record-breaking week. To determine the answer, here is a reminder of what has fueled the recent leg-up of the stock market rally, which began 4 years ago on March 9, 2009:
- Europe is not currently on the brink of disaster
- China appears to have avoided an economic "hard landing"
- Japanese officials have started to address the country's 20-year economic stagnation
- U.S. corporate earnings have risen at an annualized rate of over 20 percent since the end of 2008
- U.S. housing has finally bottomed
- The Federal Reserve and other central banks around the world are pumping money into the economy via monetary policy
As long as these factors remain in place, the rally may continue. But a strange thing happened last week: Despite the new "Dow Record" graphics from the financial news outlets, retail investors did not seem all that impressed with the event.
What's going on? It probably has a lot to do with what has happened over the past 5 1/2 years. When the blue chip index first closed above 14,164 in October 2007, the nation's unemployment rate stood at 4.7 percent -- today it's 7.7 percent; nationally, home prices have dropped about 25 to 30 percent from that time; and the average price for a gallon of regular gas is about a dollar higher today than it was then. For those still working, the January 2013 median income stands at approximately $51,500, which is 6.2 percent lower than the median of $55,002 in December 2007, the beginning month of the recession.
Then there's the number itself. You probably heard a lot about the nominal high for the blue chip index. That refers to the fact that the record references a number, but not one that is adjusted for inflation. When factoring in the rate of inflation, the Dow would have to climb to 15,731.54 to break the real record. In fact, after adjusting for inflation, the Dow is still below its year 2000 peak.
Forgetting about the numbers, stocks around the globe are on a serious bull run right now. The market's progress does represent global economic recovery, but is more reflective of a jump in corporate profits and central bank policies that make stocks the best choice among various asset classes. Even political shenanigans can't derail the current progress, according to the bulls.
But as the Dow record is broken day after day and the S&P 500 comes within 1 percent of its all-time nominal high of 1,565, consider what a wise trader said last Friday: "The bear can sneak up on you and snatch those gains as fast as you can say 'debt ceiling,' 'eurozone,' or 'Lehman Brothers'"!
-- DJIA: 14,397 up 2.1 percent on week, up 9.9 percent on year
-- S&P 500: 1,551, up 2.1 percent on week, up 8.8 percent on year
-- NASDAQ: 3,244, up 2.3 percent on week, up 7.5 percent on year
-- April Crude Oil: $90.68, up 1.4 percent on week
-- April Gold: $1,572.30, up .3 percent on week
-- AAA nat'l average price for gallon of regular gas: $3.71
THE WEEK AHEAD:
7:30 NFIB Small Business Index
8:30 Retail Sales
8:30 Import/Export Prices
10:00 Business Inventories
8:30 Weekly Claims
8:30 Producer Price Index
8:30 Consumer Price Index
8:30 Empire State Manufacturing
9:15 Industrial Production
9:55 Consumer Sentiment