The Dow Jones Industrial Average has jumped up to its highest level ever, erasing the losses from the financial crisis experienced during the recession. A rally of 4 straight years has helped the gauge to post its fastest growth since the 1990s. It was also helped further by the monetary stimulus measurements taken by the Federal Reserve.
The current valuation of the Dow Jones is however 20% lower than the price-earnings ratio at the last peak. On the other hand, it is still 15% below the 20-year average as well. The investors are kind of divided on what it means when it comes to the valuation of the Dow Jones. Some believe that this denotes the stocks still have further room to rally, whereas, some think that the Federal Reserve is not capable to continue with the current spur in US economy.
Wasif Latif, who works as the Vice President of the Equity Investments Department of USAA Investments, it is great to see that the Dow Jones has recovered so much from the depths of crisis. On the other hand, he advised investors to be diligent and closely watch how far the gauge increases, as it is already on its all-time high.
Incidentally, the Dow Jones gauge has been in operation for 116 years now. On today, it increased by 0.7% and is currently set at 14226.2. Incidentally, the previous all-time high of the gauge was at 14198.1, experienced on 11th October, 2007. The worst performance in 77 years was experienced by the gauge in 2008, when it tumbled by 38%.
Since the previous low, companies such as Caterpillar Inc., American Express & Home Depot Inc. have played a huge part in helping the gauge to surge ahead. Other companies such as General Motors Corp., American International Group etc. were deleted from the Dow Jones, whereas, Travelers Co., UnitedHealth Group & Cisco Systems became new entrants.
It is expected that the profits of the Dow Jones gauge will increase by 9.2% in 2013 and by 9% further in 2014. According to the estimates published by the Wall Street economists, the companies listed under Standard & Poor’s 500 Benchmark index will exceed $120 per share profit by end of 2014. The operating margin for the S&P companies is currently at 19.9%. Incidentally, operating ratio measures the profitability.