Investors favored bonds in Dow's steepest ascent in 70 years

The nation's fixed-income funds have attracted 18 times more money than stocks in 2009, even as the Dow surged 53 percent after sinking to a 12-year low in March, according to data compiled by Morningstar Inc. and Bloomberg. Americans who stashed US$1.45 trillion in money-market accounts in 2007 and 2008 as the financial crisis intensified have redeployed a quarter of that cash.

That's a bullish sign to some money managers after the Dow climbed 3,468.81 points over the last seven months on speculation US$11.6 trillion in government stimulus will end the recession. Intel Corp.'s sales forecast and earnings from JPMorgan Chase & Co. pushed the measure up as much as 1.6 percent to 10,027.73 Wednesday. “A lot of people make fun of these milestones, but I think that it has an effect on psychology,” said David Darst, the New-York based chief investment strategist at Morgan Stanley Smith Barney, which has US$1.4 trillion in client assets. “That can have an effect on tipping people over to being more worried about being out of the market.”

A net US$254.6 billion was added to bond funds during the first nine months of 2009, compared with US$14.5 billion for stock managers, according to Chicago-based Morningstar. Almost US$3.45 trillion remains in U.S. money-market accounts, data from Washington-based Investment Company Institute show.

The Dow, which first reached 10,000 more than a decade ago, is 29 percent below its Oct. 9, 2007, all-time high even after the biggest two-quarter advance since 1987. The measure trades for 14.5 times the operating earnings of its companies from the past year, 33 percent more expensive than the 12-year low of 11 reached in June.

Bank of America Corp., American Express Co. and JPMorgan Chase & Co. more than doubled since the 30-stock gauge reached its low in March as global financial firms began recovering from US$1.6 trillion in writedowns and credit losses. International Business Machines Corp. and Hewlett-Packard Co. jumped at least 53 percent on signs the nation was recovering from the worst recession in seven decades.

The Dow fell as much as 43 percent after Lehman Brothers Holdings Inc. filed the largest bankruptcy in September 2008 and dragged the financial system to the brink of collapse. Investors have returned to the stock market after the U.S. government lent, spent or guaranteed US$11.6 trillion to shore up banks and revive the economy.

“It's still going to be a volatile market but we think it's sustainable and that we're on track to go up from here,” said Peter Sorrentino, who helps oversee US$13.8 billion at Huntington Asset Management in Cincinnati.

All 30 Dow companies have risen since the March low, led by Bank of America's fivefold surge after the biggest U.S. bank by assets reported a first-half profit of US$7.47 billion. American Express more than tripled for the second-best performance, followed by a near-tripling for JPMorgan.

The 113-year-old benchmark closed above 10,000 for the first time on March 29, 1999, and went on to advance 25 percent that year for a ninth-straight annual gain. The gauge peaked at 11,722.98 in January 2000 before plunging 38 percent through October 2002 as the technology-stock bubble burst.

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