The Dow Jones Indus­trial Average broke the 10,000-point mark on Wednesday for the first time since October 2008, a mile­stone that made news around the world.

Here, Nicole Boyson, assis­tant pro­fessor of finance and the 2009–2011 Reisman Research Pro­fessor, talks about what the Dow’s resur­gence means for the economy and the stock markets.

Is the Dow’s breaking 10,000 points purely sym­bolic, or does it have real meaning for the overall economy?

I think it’s a sign the economy is heading in the right direc­tion. Since March 9, 2009, the Dow is up nearly 3,500 points—over 50 percent—and the ride has been a pretty steady path upward, with a short breather in mid-​​summer.

Even though the U.S. mar­kets have been steadily rising over the past seven months, so has unem­ploy­ment. We’ve heard from Pres­i­dent Obama and others that employ­ment is a lag­ging indi­cator. Still, people are mys­ti­fied that the mar­kets can be rising while the economy only seems to worsen. What’s going on?

The pres­i­dent is correct—employment is a lag­ging indi­cator. Though some com­pa­nies suffer at the first sign of an eco­nomic down­turn and go out of busi­ness, com­pa­nies that sur­vive a reces­sion often take a bit of time to figure out their strategy going for­ward. If this strategy involves down­sizing pro­duc­tion, it often involves down­sizing the work­force as well.

Just how much an improve­ment in employ­ment lags a recovery has varied from reces­sion to reces­sion, although the average for the 1973–1975 and 1981–1982 reces­sions was about 12 to 18 months. This reces­sion has been par­tic­u­larly hard in that unem­ploy­ment rates are near 10 per­cent, a level not seen since 1983, so I sus­pect it will take quite a while for employ­ment to recover.

What does this mile­stone mean for the mar­kets? Do you think it will con­tinue to be a volatile market for stocks, or can investors start to believe it is stabilizing?

The VIX, a mea­sure of the volatility of the broad stock market that has been cal­cu­lated since 1990, hit an all-​​time high in October 2008. It is now down to about one-​​third that level, and quite close to its his­tor­ical average. So, although the stock market should never be con­sid­ered a low-​​volatility place to invest, volatility does seem to be returning to more typ­ical levels.

Com­pared to where the Dow was last March, 10,000 points is a big number. But it’s still closer to the bottom than to last year’s peak of 14,000. Was that peak only pos­sible because of the house of cards that was built on shaky mort­gage investments?

Though the rela­tion­ship between shaky mort­gage invest­ments and the value of the Dow is pretty com­plex, I believe that the will­ing­ness of insti­tu­tions to make risky loans and the will­ing­ness of con­sumers to take on these loans cer­tainly con­tributed to the high Dow value.

I’m quite sure the Dow will reach 14,000 again, but it’s dif­fi­cult to say exactly when. Assuming a typ­ical stock market return of, say, 7 per­cent per year, it would take five or six years to get back to that level. That said, when the economy recovers, we typ­i­cally see much higher returns during the recovery period, so it could be much quicker than that. Of course, the jury’s still out on whether this recovery is the real deal.

Some econ­o­mists have been saying the recovery isn’t real and we need another stim­ulus bill. Is that a good idea, and, if so, what should the target of the bill be?

A 50 per­cent recovery in the U.S. stock market since its lows and the improve­ments in many other eco­nomic indi­ca­tors are strong evi­dence that the fed­eral stim­ulus package has been helpful thus far.

I believe strongly that it is rather impru­dent to attempt to manip­u­late the economy into a fast recovery. We didn’t get into this mess overnight, and shouldn’t expect to get out overnight.

We also need to be careful with stim­ulus pack­ages that encourage con­sumers to borrow or spend beyond pru­dent levels. After all, con­sumer debt and impru­dent bor­rowing were a factor in the recent eco­nomic downturn.

On the heels of the bank bailouts, the uptick in the stock market has caused many people to feel even more dis­con­nected from, and resentful of, a Wall Street cul­ture that seems unin­ter­ested in and immune to Main Street’s pain. Do they have a valid point?

Cer­tainly the Wall Street cul­ture of cre­ating increas­ingly risky prod­ucts and earning large bonuses based on the sale of those prod­ucts con­tributed to the eco­nomic down­turn. How­ever, the will­ing­ness of many Amer­ican con­sumers to take on debt well beyond levels that would be con­sid­ered pru­dent to par­tic­i­pate in the Amer­ican dream of home own­er­ship was a large con­tributing factor as well.

That said, many Amer­i­cans who did not behave impru­dently are still suf­fering as a result of this bailout, as are former Wall Street employees who were not involved with risky products.

The bailouts appear to be working to a large extent, in that many banks are enjoying healthy bal­ance sheets and paying back gov­ern­ment loans at a steady rate. Hence, I think the best approach for con­sumers is to enjoy the increase in their retire­ment assets attrib­ut­able to a rising stock market, and to think twice before bor­rowing money that may be dif­fi­cult to pay back.