Dow closes above 10,000 for 1st time in a year

AP Photo/Richard Drew

A board on the floor of the New York Stock Exchange shows the closing Dow Jones Industrial Average, Wednesday Oct. 14, 2009. The Dow Jones industrial average reclaimed 10,000 for the first time in a year.

Associated Press

Published Wednesday, Oct. 14, 2009 | 10:41 a.m.

Updated Wednesday, Oct. 14, 2009 | 2:10 p.m.

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When the Dow Jones industrial average first passed 10,000, traders tossed commemorative caps and uncorked champagne. This time around, the feeling was more like relief.

The best-known barometer of the stock market entered five-figure territory again Wednesday, the most visible sign yet that investors believe the economy is clawing its way back from the worst downturn since the Depression.

The milestone caps a stunning 53 percent comeback for the Dow since early March, when stocks were at their lowest levels in more than a decade.

"It's almost like an announcement that the bear market is over," said Arthur Hogan, chief market analyst at Jefferies & Co. in Boston. "That is an eye-opener -- 'Hey, you know what, things must be getting better because the Dow is over 10,000.'"

Cheers went up briefly when the Dow eclipsed the milestone in the early afternoon, during a daylong rally driven by encouraging earnings reports from Intel Corp. and JPMorgan Chase & Co. The average closed at 10,015.86, up 144.80 points.

It was the first time the Dow had touched 10,000 since October 2008, that time on the way down.

"I think there were times when we were in the deep part of the trough there back in the springtime when it felt like we'd never get back to this level," said Bernie McSherry, senior vice president of strategic initiatives at Cuttone & Co.

Ethan Harris, head of North America economics at Bank of America Merrill Lynch, described it as a "relief rally that the world is not coming to an end."

The mood was far from the euphoria of March 1999, when the Dow surpassed 10,000 for the first time. The Internet then was driving extraordinary gains in productivity, and serious people debated whether there was such a thing as a boom without end.

"If this is a bubble," The Wall Street Journal marveled on its front page, "it sure is hard to pop."

It did pop, of course. And then came the lost decade.

The Dow peaked at 14,164 in October 2007, then lost more than half its value after the financial meltdown last fall. At its low point, the average stood at 6,547.05. The breathtaking rally since then brings stocks to roughly break-even for the past 10 years.

So where does the market go from here?

Some market watchers see 10,000 as an illusion because there are still lingering threats to an economic recovery -- rising unemployment, weak consumer spending and a battered housing market.

The investors who have driven stocks higher since March are the pros: hedge funds and institutions whose furious selling hastened the collapse of the market in the first place.

And red flags are showing up in the technical charts that professional investors use as they make their trading decisions. The Dow sits about 18 percent above its average of the past 200 days.

"The market by all technical indicators is completely overbought, just like back in March it was completely oversold," said Rich Hughes, co-president of Portfolio Management Consultants in Los Angeles.

On the other hand, Wall Street analysts say 10,000 is more than just a number -- it can have legitimate psychological implications.

A recovering stock market soothes the psyche as people watch their portfolios and 401(k) retirement accounts being replenished. And if people start spending again, that may persuade more investors, including some reluctant pros, to go back into the market.

"Psychology plays a huge role in investing, so when you're trying to overcome the huge levels of panic and fear that we've seen over the last year, psychology shouldn't be discounted," said Carl Beck, a partner at Harris Financial Group.

Many investors, especially individuals, are afraid they'll put money into the market only to watch it disappear if stocks plunge again. It's happened before: In 1975, stocks rose 53 percent in less than four months after a recession. Then they lost 11 percent before climbing again in early 1976.

If stocks follow historical patterns, they could be nearing their peak. Assuming the recession technically ended this summer, as many economists believe, the Dow's surge since March puts it near where past rebounds have started to fade.

On top of that, there are still plenty of problems that could trip up the market. Companies posted better-than-expected earnings in the second quarter, but mostly because of cost-cutting, not the sales increases needed to keep growing.

Individual investors remain cautious. In August, well into the rally, they put $11 into bond funds for every dollar they put into stock funds, according to the Investment Company Institute, the mutual fund trade group.

But they appear to slowly be coming back to stocks. Retail brokerage TD Ameritrade reported an average of 431,000 trades a day in August, up from barely more than 300,000 when the market was sliding in January and February.

If the market can hold Wednesday's milestone, investors should grow even more confident.

"It wouldn't surprise me if it made Joe Main Street more comfortable," David Kelson, portfolio manager of Talon Asset Management in Chicago.

Discussion: 6 comments so far…

By mrjb

10/14/09 at 11:47 a.m.

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This is not a reflection of free market capitalism, this is a reflection of hundreds of Billions of Dollars of bailout money taken from future generations.
By kevjandon

10/14/09 at 4:48 p.m.

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I tend to agree. Who is doing the investing and with what capital? I'm glad that my 401K has recovered to the amount of my initial investment, don't get me wrong.

But with 10% unemployment across the natiion, I would think that volume of 401K contributions are down. Companies are not matching anymore so that is less money to the stock market too. Folks that are still employed my have stopped their contributions as cash in hand is a better deal in this economy for those that may lose their jobs. Lets not forget folks who cashed out their 401K's and IRA when they got laid off.

In Vegas, construction workers have a 30% unemployment rate. I'm sure these guys have stopped paying their union dues. Which leaves less money for the Union to invest.

So back to my question, where is the money coming from that is being used as investment money? Is the recovering stock market soley based on leveraging the TARP funds? If so, this won't last long.
By DTJ

10/14/09 at 7:11 p.m.

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The market has been trading sideways for 10 years, now. The bubble years briefly blipped it up to 14,000, in 2007. But that wasn't for real. There has been no legitimate growth story in America since the tech growth turned into a tech bubble. And I don't see any new growth story in the immediate future. Hence, the yo-yo stock market of the last ten years, will continue.

Kevjandon,
There is over $3 trillion dollars sitting on the sidelines in money market accounts. And there are huge amounts of dollar reserves in Asia. But as I indicate above, there's no *reason* for people to put that money into stocks, for the seeable future. P/E ratios are still high; no growth story on the horizon. America is in debt, and doesn't manufacture, anymore. The dollar, and dollar denominated assets are headed dowwwwwnwards for the long term. If the money on the sidelines finds it's way into US stocks again, it'll just be another house of cards set to implode.
By gold1020

10/14/09 at 7:32 p.m.

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I hope i'm wrong but i've got a strong feeling that this stock run is a suckers rally in an overall bear market. People have lost a ton of equity in their houses & are pumping whatever remaining money they have into stocks- trying to recoup. There's virtually no available credit & unemployment is too high to sustain any long term growth. I think the market eventually rolls over & goes sharply lower.
By AngryReader

10/14/09 at 10:49 p.m.

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3 trillion dollars on the sidelines that the sharks are trying to lure into the trap.

When dollars are worth dimes, can I eat gold?
By lvdjlv

10/15/09 at 12:57 a.m.

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Think about this for a second...

The Subprime bubble ($1 trillion) popping created this mess and the Subprime loans have been pretty much been worked through. It spiked in 2008 and the market crashed right?

Well... Option Arms and Alt-A loans ($1.2 trillion) have been resetting since August 2009 and will continue to keep resetting into August 2011 and will peak in August 2011 and continue resetting into 2012.

Right now, the market is "recovering"...

Lol... This is the valley between two spikes of $2.2 trillion dollars of bad paper that needs to be purged through the system...

If you think the recession is over... You're going to regret it. Go read this:

http://money.howstuffworks.com/recession...

1. Are people buying more stuff? I don't think so. Definitely not in Las Vegas. Our numbers are down.

2. Has factory production increased? I haven't heard anything. Cars For Clunkers ended and the automakers aren't stocking the lots. What else do we make? Toasters?

3. Has unemployment stopped going up? Nope. And the govt. is skewing the numbers so we're not REALLY depressed.

4. Slump in personal income? Duh. We're all making less and we're not likely to get back to 2006 salaries for a while.

5. Unhealthy Stock Market? Sure, it's been recovering... But the time bombs are ticking... Just like they did in 2007 and 2008. (Option Arms, Alt-A's, Commericial Loans, Credit Card debt...)

When Warren Buffett logs in and tells me otherwise, then I'll believe the recession is over.