Here we are again Dow 10 000

Post on: 22 Май, 2015 No Comment

Here we are again Dow 10 000

By Adam Shell, USA TODAY

NEW YORK — The most famous big round number in Wall Street history, the one that investors use to gauge financial success, the one that gets rock star-like headlines, the one that for the past 10 years has wielded a powerful psychological sway over the manic-depressive Mr. Market, is back again!

Like a magnet, Dow 10,000 has emerged as a financial force of nature that attracts and repels stock investors during thrilling bouts of profit-induced euphoria and depressing journeys into money-losing despair. The Dow Jones industrials may climb above 14,000. Perform a 15,000 tease. Or plunge to 6500. But ever since its maiden voyage to 10,000 on March 29, 1999, the 113-year-old stock index with the blue-chip pedigree always seems to end up back at the same place: Dow 10,000.

The market closed Wednesday with the Dow up 145 points to 10,016, its first time above 10,000 in a year. The fact that the Dow, a financial icon with a global following, is again north of that key level is significant because seven months ago it was feeling the full brunt of the financial crisis and trading below 7000 a 12-year low and 53.8% off its October 2007 record of 14,164.53.

At the bear market low, many scared investors worried the Dow could go to zero. The best investment at the time, skittish investors thought, was a pile of cash stashed at home in a secret hiding place. So the fact that the Dow has rallied almost 3,500 points since early March is a big-time confidence boost.

And while few stock strategists are calling for Dow 15,000 anytime soon or 11,000 for that matter they say the quick return to the five-digit milestone is still cause for celebration, albeit a more muted bash compared with the irrational exuberance in the go-go 1990s.

In 1999, when we first closed above 10,000, it was like breaking the sound barrier, says Chuck Carlson, a contributing editor at Dow Theory Forecasts. a newsletter that uses a stock-forecasting system created by Dow creator Charles Dow .

And the reaction to 10,000 this time? It is more like been there, done that, Carlson says.

But even though investors have traveled this form of financial round trip before, there is one key difference this time: It shines a spotlight on how far we have come from March, says Carlson, referring to the dark period when the banking system seemed on the verge of collapse and another Great Depression seemed possible. At a minimum, it provides an emotional lift to investors.

So what’s next for the Dow? How investors react to Wednesday’s bullish news could determine the fate of the current stock rally, which has seen the Dow gain 53% since March 9.

If investors view the Dow’s recovery as a signal that the economy and financial markets are healing, it could serve as a mood-altering boost. It might also lure skeptical investors hiding in safe fixed-income investments such as money market funds and certificates of deposit, which are yielding close to 0%, to move cash back into stocks, says Bruce Bittles, chief strategist at Robert W. Baird .

Dow 10,000 will act like a magnet, Bittles says. It will increase optimism and bring in more money off the sidelines. But, he says, the index must stay above 10,000 for a few weeks or more before investors think it is safe to get back in.

Risk-taking on Main Street may also make a comeback. In fact, pro investors’ risk appetite has reached its highest point in more than three years on optimism about the prospects for a global economic recovery, according to the BofA Merrill Lynch Survey of Fund Managers for October.

But there is also a risk that investors will focus on a more negative storyline: The Dow is right back where it was in the spring of 1999, when the index first closed above the milestone. Back then, bulls argued that Dow 10,000 would act as a floor for stock prices. They were wrong.

There will be a war between the things-are-getting-better camp and bears who say the recovery will be too weak for the gains to last and who talk about it being a lost decade for investors.

There will be a lot of people who will say, ‘This is a lot better than Dow 6000′ and they’ll rejoice in that, says John Prestbo, editor of Dow Jones Indexes. There will also be people that say, ‘We have not gone anywhere in 10 years. I’m giving up.’

The Dow, despite its year-to-date gain of 14.1%, is still 29.3% below its record close.

Still, Prestbo stresses that crossing Dow 10,000 on the upside is far more reassuring than when the Dow last crossed the threshold in a selling panic.

The last time (Oct. 3, 2008) we were at 10,000, the market was heading in the other direction; those were scary days, Prestbo says. This time we are in an updraft, and that is always better. It tells us we are regaining our economic strength.

Dow’s long history

Since its inception on May 26, 1896, when the Dow had just 12 stocks that represented the then-industrial economy including current Dow member General Electric. and such names as American Sugar, American Tobacco, Tennessee Coal & Iron, and U.S. Rubber the Dow has symbolized the American entrepreneurial spirit. In many ways, the Dow’s ups and downs have tracked the ebb and flow of the U.S. economy through good times and bad, bull and bear markets, wartime and peace.

Most Americans have grown up with the Dow. When folks think about the stock market, or want to know if their 401(k) balance is up or down, the first thing that probably comes to mind is the Dow. They read about the Dow in newspapers. Hear about its gyrations on radio and TV. And get up-to-the-second index updates from computers and high-tech handheld gizmos.

The Dow, says Bittles, is like a trademark or consumer brand. It is like Coca-Cola .

Most Americans have heard and know about all 30 stocks in today’s Dow names including American Express. AT&T, ExxonMobil. Home Depot. IBM, McDonald’s, Microsoft. Wal-Mart Stores and Walt Disney. The Dow components play a vital role in the economic strength of America. In many ways, the Dow is a proxy for the health of the U.S. economy.

Says Prestbo: Nothing of economic significance can happen to America that is not felt by any or all of these companies. Critics counter that the small number of stocks in the Dow make it an imperfect measure of the economy’s strength or weakness.

More books have been written about the Dow than about the beloved Harry Potter.

Many are based on predictions of the Dow climbing to the sky. In 1982, when the Dow broke through 1000 for good, Dow 3,000 hit bookstores. In 1999 at the height of the dot-com stock boom came Dow 100,000: Fact or Fiction. After stocks peaked in 2000 came tomes such as Dow 36,000

Many books try to lure readers with Dow-beating strategies. Case in point: Trouncing the Dow. Some warn of dark days ahead: When the Dow Breaks: Insights & Strategies for Protecting Your Profits in a Turbulent Market .

In addition to books, there have been mutual funds and investment letters created with Dow-centric investment strategies. The Dow gets even more ink than A-Rod of the New York Yankees .

What’s the next round number?

The debate over the Dow now will focus on what round number comes next? 11,000? Or 9,000?

Bulls say the Dow’s current momentum may push it higher. There are some key fundamental underpinnings that point to higher prices, says Byron Wien, vice chairman of Blackstone Advisory Group. For one, the economy is showing signs of life, and fears of a financial meltdown have faded from view.

An improving profit picture for U.S. companies is also constructive. Better-than-expected third-quarter profit reports this week from key Dow components, such as computer-chip maker Intel and banking giant JPMorgan Chase, provided the fuel needed for the Dow to top 10,000 Wednesday and hit fresh 2009 highs. Intel’s report was particularly bullish, as the tech company topped analyst expectations on earnings, revenue and margins, which was described as an earnings hat trick, by Mike O’Rourke. chief market strategist at BTIG.

Says O’Rourke: Investors should be feeling good about this start to earnings season.

What’s more, the stock market is still reasonably priced compared with history. In addition, most institutional and individual investors remain underinvested in stocks due to continued high levels of risk aversion. That group represents buying power.

Stocks in the broader Standard & Poor’s 500-stock index are trading at 14 times next year’s estimated earnings, which is in line with the long-term average price-to-earnings ratio of 15, Thomson Reuters data show. Nearly half (46%) of institutional money managers surveyed recently by Northern Trust said they believe the S&P 500 is undervalued, vs. just 20% that said stocks are overvalued.

The early part of this decade was a period of excess, Wien says. But we have now purged those excesses. We are back at equilibrium.

Skeptics say stocks will relapse when the government stimulus that has been propping up the economy wears off. They say stocks have shot up on the belief that the economic rebound will be V-shaped, which they say is not likely. They also wonder how the economy and corporate profits can keep chugging along with unemployment around 10% and consumers choking on debt and falling asset values, such as real estate.

Dow 10,000 might be a magical number, but if the economy doesn’t have enough power behind it, the Dow can’t keep going up, says Pat Adams, portfolio manager at Choice funds. He says the economy is on a sugar high from all the money the government has thrown at the problem. When the sugar rush wears off, he argues, the rally will, too. He uses an analogy from the Peanuts cartoon strip to make his point:

When it comes to Dow 10,000, I always feel like Charlie Brown, Adams says. Every time we get to this level, Lucy pulls the football out from under us. And that could happen again.

Bittles admits the Dow has lost some of its glamour in the past decade. But he says the world’s most famous stock index will attain rock-star status again when it rises above a big round number it has never seen before. Like Dow 15,000, Bittles says.


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