Wall Street stock indexes soared in April with the Dow Jones Industrial Average rising 490.81 points, nearly 4 percent, to 12810.54. The Dow has reached its highest level since May 2008, before the financial crash, and is just 10 percent below its peak of October 2007.
The Nasdaq Index has surpassed 2007 levels and is now approaching heights not seen since the dot.com bubble in 2000. The Russell 2000 small capitalization index is up 150 percent since its low in March 2009.
The bull market is being driven by investors’ access to virtually free credit and a spike in profits for America’s biggest corporations. About three quarters of the top companies reporting earnings so far have beat Wall Street expectations, according to Bank of America Merrill Lynch.
The market is also rising in anticipation of the multitrillion-dollar cut in entitlement programs and other social spending being debated by the Obama administration and congressional Republicans. While there was a one-day sell-off April 18 after the credit rating agency Standard & Poor’s issued a warning on US government debt, the markets quickly rebounded as Wall Street investors realized the warning would be used to ram through historic budget cuts.
Last week, US Federal Reserve Chairman Ben Bernanke endorsed the demand for deep austerity measures, saying cutting the deficit was the “most important” problem facing the country.
Every objective measure points to a US economy still mired in a deep slump. Unemployment and long-term jobless remain chronically high; the first quarter saw an anemic growth in the Gross Domestic Product of 1.8 percent annually, down from the 3.1 percent fourth quarter rise. In addition, the value of the dollar continued to plunge while speculation has driven up oil and other commodity prices.
Investors shrugged this off and celebrated the sharp increase in corporate profits, which were up 26 percent in the first quarter from the same period last year. “The economic recovery in the US is over. We’re in expansion mode,” Bob Doll, chief equity strategist for fundamental equities at money manager BlackRock Inc., told the Wall Street Journal. In spite of some obstacles, he said, “the market has chosen to pay attention to what has been really good earnings.”
The rise in corporate profits is chiefly the result of an unrelenting drive to lower wages and ratchet up workers’ output. Real wages fell for the fifth straight month in March, according to the Bureau of Labor Statistics, leaving workers’ pay way behind the rising cost of food, gas and other expenses. The consumer price index rose 2.7 percent for the year ending in March, the fastest 12-month pace since December 2009. Average hourly earnings rose only 1.7 percent, resulting in an actual cut of 1 percent in real wages.
Corporations, which are doing little if any hiring, are exploiting high levels of joblessness to suppress wage demands or impose outright wage and benefit cuts. “If the labor market were tight, workers could say, ‘I am getting squeezed, can I get a raise?’” Julia Coronado, chief economist for North America at BNP Paribas in New York told Bloomberg News, which added, “That’s not an option with 13.5 million unemployed Americans competing for work and a jobless rate of 8.8 percent, she said.”
via www.wsws.org
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