Why the Dow Jones average finally closed above 12000

The Dow Jones average closed at 12040.16 Tuesday. Crossing the 12000 level might encourage investors to spend more money.

Richard Drew/AP
A television screen at a trading post on the floor of the New York Stock Exchange shows the closing number for the Dow Jones average closed above 12,000 Tuesday for the first time since June 2008.

The Dow Jones Industrial Average has opened above the 12000 level for the first time since June 2008.

On Tuesday, the widely watched Dow Jones average closed at 12040.16, after passing the level twice last week but then selling off before the end of each day. The last time the average was at this level was before the financial meltdown.

The 12000 level, market analysts say, has more of a psychological impact than anything else. Newspapers and websites are highlighting the achievement, and investors will read the stories and perhaps feel slightly wealthier. That may lead to greater willingness to spend money.

“These round numbers are good for most on Main Street and many on Wall Street because it tells them that the trend is still higher,” says Sam Stovall, chief investment strategist at Standard & Poor’s, whose own broader average moved over 1300 on Tuesday as well.

Fueling the rise, analysts say, was a raft of better earnings statements, signs that the economy is beginning to grow faster, and continued easy money from the Federal Reserve. But the key on Tuesday was the feeling that the Egyptian crisis might be resolved peacefully.

“Overall, the market seems reassured there are no unpleasant surprises out there,” says John Toohey, vice president for equity investments at USAA Investment Management Co. in San Antonio. “Plus, there seems to be a growing optimism that the economy is picking up momentum, even if the improvements seem to be incremental.”

On Tuesday, the market gained some strength after a report from the Institute for Supply Management (ISM) showed businesses reporting very strong sales in January. Included in the report was an indication that businesses planned to step up hiring.

Corporate earnings continue to be good, says Mr. Toohey, whose company manages $47 billion in assets. In fact, he says, sales appear to be better than Wall Street expectations at many companies.

But going forward, he anticipates earnings comparisons will become more difficult on a year-over-year basis. “We’ll be watching sales to see if there is some pickup,” he says.

According to Mr. Stovall, Wall Street is also cheered by the Federal Reserve’s latest assessment that it needed to keep short-term interest rates low. That assessment took into account that growth in the labor market is slow and inflation is below the Fed’s target level.

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