March 12, 1999
Heard on the Street
Dow 10000 Would Add Up
To Something, but What?
By E.S. BROWNING
Staff Reporter of THE WALL STREET JOURNAL
Historic? Absolutely.
Significant? Well ... .
As the Dow Jones Industrial Average draws nearer to the 10000 level, some analysts are surprised at all the attention it is getting.
"It is a symbol, that's all it is," says Robert Sobel, business historian and professor emeritus from Hofstra University. Adds Terence McLaughlin, managing director of New York fund-management firm Ashland Management, "It is just another number."
Join the Discussion: What's the significance of the Dow reaching 10000? What factors do you think will be responsible for taking the market higher or lower?
Yet others suggest that it might be more than just another number, at least in the short term. They debate what impact reaching a five-digit industrial average might have on investor psychology in the days and weeks following the breakthrough. The bull case calls for Dow 10000 to buoy investor spirits, setting the stage for further gains. Already, some strategists are predicting the industrial average will reach 11500 before the close of 1999.
The move through 10000 could boost market confidence, says J. Thomas Madden, chief investment officer at Federated Investors in Pittsburgh, who leans toward fundamental analysis. "But what is more important is that this is noteworthy evidence that the bull market is intact. It reminds us in the simplest way that the fundamental backdrop is very bright and has regularly surprised some of the brightest minds on Wall Street."
But more-cautious analysts worry that all the attention Dow 10000 will receive may prompt investors to take a closer look at their portfolios. And then sell.
Robert Stovall, president of New York money-management firm Stovall/TwentyFirst Advisers, agrees that all the hoopla surrounding Dow 10000 is "fluffy." But he adds, "so are a lot of things in life." He worries that Dow 10000 "may be somewhat like a groundhog coming out of his hole and being hit by blinding sunlight and going down again for a while," although if they do take a breather, he then sees stocks continuing upward.
Others look back to 1972, when the blue-chip index first crossed 1000. It proceeded to slump and then became mired in a funk, staying at or below the 1000 level for another decade.
"Back in 1972, when the industrials crossed 1000, that was psychologically much more important than 10000," says Richard Evans, an investment advisor in Flossmoor, Ill., who tracks the movement of various Dow Jones stock averages. Of course, he and others hasten to add that the 1970's were a period of inflation, rising interest rates, oil crises and unsettled markets, a far cry from today's world of low inflation and moderate economic growth.
Today, the big worry is market psychology, which has proved such an important engine for the eight-year bull market. Some fear hitting 10000 actually could fuel selling.
"From a psychological standpoint it is a milestone for the market," explains Mr. McLaughlin of Ashland Management. "Maybe because people in my business are cynical, I am a little afraid that when we hit 10000 people will say, 'What are we doing here?' rather than saying, 'Let's all get in the boat.' "
Gregory Nie, technical analyst at Everen Securities in Chicago, notes that "there are still some who arbitrarily choose round numbers to do an asset-allocation trade. They sell the appreciating asset, in this case stocks, to rebalance the portfolio."
Tim Hayes, senior stock strategist at Ned Davis Research, says his studies indicate that when the industrial average "gets close to a big psychological round number, it can either hang up there right below it, or can hang right above it. I think that might happen." His target for the blue chips is 10200.
Adds William Meehan, chief market analyst at Cantor Fitzgerald, "When you look at something for so long a period of time as a rallying point, you get there and people say, 'Now what am I going to do?' and they take a little money off the table."
Technical analysts like Mr. Nie of Everen measure the movement of various stocks and stock groups to try to figure out where the market is headed. They care less about big, round numbers than they do about trying to forecast future inflection points.
"The target I have for the medium term is 10500, and that is based on the relationship of the Dow industrials to their 200-day moving average," Mr. Nie says.
Mr. Meehan of Cantor Fitzgerald says he, like most professional investors, attaches more importance to movement in the Standard & Poor's 500-stock index. Crossing S&P 1290, which the S&P 500 did Friday, was more important to him than what the industrial average did. The next key "resistance point" that he will look for is 1350 to 1360 on the S&P 500, he says.
Fundamental analysts think the market is driven by such things as corporate earnings and interest rates, so they generally don't consider the 10000 mark a big deal, either.
And right now, Prof. Sobel thinks it is hard to draw a lot of wisdom from past market behavior. "Trying to understand the market we have now in the context of any market we have ever had is not a very sensible thing," he says. "The market we have now is cut loose from all past reality."
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