Can Fed Beige Book, Recent U.S. Economic Data Support the Dow Above 13000?

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Recent U.S. economic data - including the Fed's Beige Book released today (Wednesday) - has helped push the Dow Jones Industrial Average above 13000 - and could keep the rally going.

The Beige Book, the Federal Reserve's monthly report on the U.S. economy, showed a modest, moderate growth pace underway in the U.S. economy. The Fed cited continued manufacturing expansion, higher consumer spending, and slight increases in hiring as signs of steady recovery.

This report followed an earlier release by the U.S. Commerce Department Wednesday that U.S. GDP growth grew at a revised 3% annual rate in the fourth quarter, up from the originally reported 2.8% pace. That's the highest rate since 2010's second quarter.

The data fueled investor confidence following the first day that the Dow closed above 13000 since May 19, 2008.

"I think it's a momentous day for investor confidence," Jack Ablin, chief investment officer at Harris Private Bank, told NPR Tuesday. "What this number implies is that the financial crisis that we were all losing sleep over, it never happened, because now we're back."

The Dow continued above 13000 today after the GDP report to near 13050, then dropped to 12940 before approaching 13000 again in afternoon trading.

With the Fed's Beige Book adding to a handful of positive recent economic data, will investors have enough optimistic sentiment to send this rally toward the market's record high?

What Recent U.S. Economic Data Shows Us

The 3% U.S. GDP growth rate was a strong increase from the previous quarter that rang in at 1.8%. The revision was based on stronger income gains than previously reported for 2011's second half and accelerated employment growth. Companies also rebuilt inventories on forecasts that consumer demand will pick up in 2012.

"The economy seems to be advancing at a persistent, albeit still modest, pace," Richard DeKaser, deputy chief economist at Parthenon Group LLC, told Bloomberg News. "The figure was buoyed to some extent by inventory rebuilding, but we're returning to the 2.5% trend pace that the expansion enjoyed before things went off track at roughly this time last year."

This isn't the only U.S. economic data comforting investors.

After-tax incomes adjusted for inflation rose at a 1.4% annual rate in the last quarter of 2011, revised from the previously reported 0.8%. More income often leads to more consumer spending, which fuels 70% of the U.S. economy - and could continue to fuel a market rally.

"The consumer may well be buying into the economy, and if that happens, this economy will take off," Andrew Liveris, president and CEO of Dow Chemical Co. (NYSE: DOW), told Bloomberg. "As you get better economic data, confidence builds."

Consumer spending grew at a 2.1% annual rate in the fourth quarter. Durable goods purchases rose 15.3%. Investment in homes and apartments climbed 11.5%.

Manufacturing numbers also have been climbing. Factory output rose 0.7% in January for the best two-month performance since July - August 2009. The Institute for Supply Management's index of new orders to manufacturers hit its highest level since April.

"The good news here is that this has been sustained primarily by growth in capital goods," James McGill, chief human resource officer at Eaton Corp. (NYSE: ETN), told Bloomberg. "We think that gives us some traction, some confidence in expecting that the recovery will continue in 2012."

A consumer confidence report released Tuesday morning helped push the Dow over 13000 and keep it there most of the day. Consumer confidence in February hit its highest level in a year.

Dow Above 13000: What's Next?

The Dow first came within 1% of the 13000 mark about a month ago, but didn't close above the resistance level until Tuesday. Now it's only 8.9% from its all-time high of 14174.53, reached on October 9, 2007.

The fact that the Dow pushed through the psychological barrier of 13000 will help sustain this rally - but investors could let concerns over higher oil and gas prices disrupt a climb to 14000. Gas prices are headed for record highs this year, and oil could hit $200 a barrel.

If investors continue to hear positive economic reports, however, the Dow could test its all-time high.

"Two months ago, we were talking about a double-dip recession. Now consumer confidence is growing," Ryan Detrick, senior technical strategist for Schaffer's Investment Research, told USA Today. "A major milestone like 13,000 wakes up a lot of investors who have missed a lot of this rally."

Soaring share prices for big blue chips like Apple Inc. (Nasdaq: AAPL) are another powerful sign for investors. Apple closed at a record high $535.41 Tuesday, gaining 1.8%.

While the Dow hovered around 13000 Wednesday, the Standard & Poor's 500 Index was up slightly at 0.1% around 2 p.m., and the Nasdaq Composite slipped 0.8%.

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