The Dow Jones industrial average roared through the 12,000 mark as stock trading began on Wednesday, contributing to a frenzy among at least some money managers and members of the financial press that has psychological if not mathematical significance for investors.
The average of 30 leading U.S. companies was up 67.40 points, at 12,017.42, in early trading. Other indexes advanced as well, reflecting strong earnings at major companies and a feeling that economic growth was fast enough and inflation slow enough to keep business on an even keel for now.
Yet 12,000 is just a number -- just as 11,000 was when the Dow crossed that level six-and-a-half years ago. We surveyed Wall Street prognosticators to see if investors should begin to party like it was 1999 (again). The consensus seems to be that conditions for equity investors are good, but not great.
Al Goldman, chief market strategist at A.G. Edwards, downplayed the significance of the Dow 12,000: "This is much ado about nothing, as Shakespeare would say. The important thing is not the Dow getting above 12,000 but what it took to get us up here and why we got here."
What it took, Goldman says, was a strong three-month upswing in the benchmark index of blue-chip stocks. "It's taken a lot of cash that was on the sidelines and a lot of energy to get there."
The A.G. Edwards analyst said that as a result, the market has overextended itself in the short term. "You remember that Peggy Lee song, 'Is That All There Is?' " he asks.
A laundry list of uncertainties is working against stocks, he says. Aside from the potential for further interest-rate increases by the Federal Reserve, investors are still dealing with a housing bubble, high energy prices and the upcoming congressional elections.
"The bottom line is that I'm long-term cautiously optimistic the market is reasonably priced," Goldman says. "The negative is that it's come a long way. Last time I checked, Wall Street wasn't a one-way street. I just don't believe in magical numbers, period."
Todd
Harrison, a former fund manager and derivatives trader, says the glut of hedge funds that exist today has created "underperformance anxiety" for the people running money.
"Dow 12,000 matters insofar as it keeps the market performance in front of enough eyes," he says. "It emboldens sentiment. It's either a good thing, from a self-fulfilling standpoint, or it creates a sense of false hope and creates dangerous bottleneck potential."
Will cheerleading from elements of the financial media, along with mildly positive market sentiment, be enough to sustain stocks in the long term?
Clem Chambers, chief executive officer of the market data Website ADVFN, seems to think so. Chambers said recently that the Dow breaking 12,000 is just the initial stepping stone on the way to the psychologically important 20,000 level for the Dow industrials. He predicts, "This is the end of the horizontal channel and the first step up to 20,000."
Perhaps Chambers can take the torch from Ralph Acampora, the Prudential equities guru of the 1980s and 1990s who correctly predicted the Dow would breach 7,000 when it was trading in the lowly 4,000s, and later 10,000.
It should be worth noting that Acampora, now the head of technical analysis at Knight Trading, recently predicted a bearish decline of 25% in the overall market.
The Dow's strength out of the gate on Wednesday was led by two technology titans, International Business Machines and Intel, both of which reported good-looking earnings for the third quarter after trading ended on Tuesday.
IBM jumped 5.2%, or $4.48, to $91.43, while Intel gained 2.75%, or 56 cents, to $21.46.
Outside of the Dow, medical-equipment maker Stryker was up 4.8%, or $2.37, at $52.18, also reflecting a strong third-quarter report.
In Nasdaq trading, another medical company, Illumina, soared 16.8%, or $6.15, to $42.79. Illumnia, which makes tools to examine genetics, swung to profit in the third quarter and surprised investors with stronger than expected sales.