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Cover Story

Dow at 15,000: What the stock market is telling us

As Wall Street posts a new record, experts decode its message about the state of the economy – and whether it's too late to invest.

By Staff writer / May 4, 2013

Traders work on the floor of the New York Stock Exchange on April 11, 2013 in New York. This is the cover story in the May 13 issue of The Christian Science MonitorWeekly.

Melanie Stetson Freeman/The Christian Science Monitor



A year into the worst economic downturn since the Great Depression, James Angel went all in with stocks – in fact, more than all in. In January 2009, the finance professor at Georgetown University bought leveraged exchange-traded funds, which allowed him to borrow money so he could own more stock. He was convinced the market was nearing its nadir. He thought it was a perfect time to invest.

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The market was cruel, at first. Already down more than 40 percent since 2007, stocks sank another 25 percent between January and March – enough that Mr. Angel needed to put in more money to keep his borrowing in line with the declining value of his holdings.

"I didn't realize I was close to a margin call," he recalls. "I was too busy teaching."

His broker sold some of his holdings before Angel's portfolio slipped to the point where he couldn't cover all his losses. Having inadvertently sold stocks when the market was so low, he walked into class that morning and announced to his students, with the dark humor of someone who knew he had probably liquidated assets at precisely the wrong moment: "This is the bottom."

And so it was. On March 9, the Standard & Poor's 500 index closed at 676.53 – a 12-year low. Since then, the market has been downright cocksure. The S&P 500 index is up some 135 percent – the fifth-strongest bull market since 1929 – giving Angel and others who invested at the right time a very healthy return. (Angel is still fully invested in stocks.)

With the S&P hitting record highs this spring, the market has erased all the trauma and financial turmoil of the past six years. And that poses a fundamental question for Americans from Long Island to Los Angeles. What is the market telling us?

Five years after one of the worst global downturns of the past century, after all, not that much has changed. Europe remains precarious financially, not to mention politically. The United States is mired in a period of slow growth and corporate caution. Even indefatigable China seems to have lost economic momentum.

Yet something has changed. The US stock market – that barometer of crowdsourcing long before the term was invented – is back. And it's telling anyone who'll listen: The fears of 2009 were overblown; the financial and economic risks that loomed so large have receded a bit. Yet the market is also delivering a more sobering message: Stocks can prosper when the Federal Reserve shovels vast amounts of 0 percent cash into the economy.

Market optimists cling to the first message. Pessimists focus on the second and ask: What happens when the Fed ends its support? Is this another bubble waiting to burst?

Whichever message turns out to be nearer the truth will affect million of investors, from baby boomers to Millennials. It holds the key to whether the current bull market will keep going – and for how long – which, in turn, will shape an older generation's retirement accounts and a young generation's decisions about how much to trust the market as a future source of income.


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