LoginSince first surpassing the 2007 all-time high earlier in the week, the Dow closed for a third record-breaking day at 14,329.49 on March 7th???, 2013. While most analysts found the event noteworthy, few believed the strong gains were all that predictive for the general course of the economy.
According to CBS, the market hasn't been a reliable indicator of economic strength. The Dow has trended sharply upward since 2009. Employment and productivity, two other common indicators of economic strength, have only seen gradual increases.
There are also concerns that this rally is artificially enhanced by the Fed's monetary policy.
"Prolonged periods of low interest rates, of the sort we are experiencing today, can create incentives for agents to take on greater duration or credit risks, or to employ additional financial leverage, in an effort to reach for yield," said Federal Reserve governor Jeremy Stein in a recent speech.
Since 2009 the Fed has kept interest rates low by purchasing a large number of bonds. Currently the Fed purchases $85 billion in Treasury bonds and mortgage backed securities each month, according to USA Today. These policies push investors to the stock market, as the low interest rates effectively make bonds expensive.
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