Dow Jones record may boost spending by wealthy; others still wary

Tue Mar 5, 2013 8:47pm EST
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By Steven C. Johnson and Ashley Lau

NEW YORK (Reuters) - About an hour after the Dow Jones industrial average hit a record high on Tuesday, Overland Park, Kansas-based financial adviser Brad Stratton got an e-mail from a client asking how she could "make hay while the sun shines."

Stratton, a former Merrill Lynch broker who set up his own firm last year, said he's been fielding a lot of such calls lately. Many are from clients who want to capitalize on stock-market gains by purchasing second homes or investment properties.

"They're seeing opportunity, both as an investment and as a lifestyle change," he said.

With U.S. stock market indices more than doubling since the financial crisis and the American housing market recovering, there are increasing hopes on Wall Street that a wider "wealth effect" could set in. That would see people with stock portfolios and homes feeling richer and more confident, prompting them to spend more on everything from home improvements to luxury cars and meals in restaurants, creating jobs in the process.

The Dow hit a record closing high on Tuesday, part of a broad market rally that has lifted the oldest U.S. market gauge nearly 9 percent so far this year. The achievement is particularly noteworthy given it is set against a background of government spending cuts and tax increases.

Solid corporate earnings, unprecedented support from the cheap money policies of the U.S. Federal Reserve and signs of improvement in the U.S. economy have helped investors overlook concerns about measures to rein in the government's budget deficit and still-high unemployment.

The stock market's gains will be felt disproportionately by the wealthy.

Ric Edelman, a Fairfax, Virginia-based independent financial adviser, said one of his clients called this week and asked him to send $62,500 because he had decided to buy a Porsche.   Continued...

The trading floor of the New York Stock Exchange is seen ahead of the closing bell in New York on March 5, 2013. REUTERS/Brendan McDermid