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The Honolulu Advertiser

Posted on: Friday, December 12, 2003

Market cracks Dow's 10,000 barrier

By Barry Flynn
The Orlando Sentinel

Traders on the New York Stock Exchange floor track the Dow industrials average, which closed up 86.30, or 0.9 percent, at 10,008.16 — a milestone not seen in 18 months. That's "important psychologically," as one analyst put it.

Associated Press

ORLANDO, Fla. — The Dow Jones industrial average — grand symbol of America's investments — closed above the 10,000-point mark yesterday for the first time in more than 18 months, dramatic confirmation that the worst stock-market downturn since the Great Depression is now merely a costly memory.

It took much huffing and puffing, as the Dow — a basket of 30 of the biggest, most widely held stocks in the country — flirted with the symbolic milestone for two weeks before ending a session above it. Earlier this week, the index briefly sneaked above the 10,000 mark, only to fall back before day's end.

So, does yesterday's close — at 10,008.32 — really matter?

That depends on whom you talk to. After all, barring a major crash in the next 2 1/2 weeks, the Dow was going to finish the year with its first annual gain since 1999, anyway.

Some individual investors, beaten down by the relentless erosion of prices during the past four years, are taking great satisfaction in the latest rally.

Most investment professionals, on the other hand, consider certain fundamental measures — corporate earnings, growth in the nation's gross domestic product and, most of all, the outlook for the future — as far more noteworthy.

"The big, round numbers on any index are important," said Rod Smyth, chief investment strategist at Wachovia Securities in Richmond, Va. "They're important psychologically.

Smyth said traders "normally expect an index to pause at a big, round number like this," as the Dow did for the past two weeks.

"We've been up and down and through 10,000 a number of times," Smyth noted.

The Dow, which broke through and closed above 10,000 for the first time on March 29, 1999, has done the same thing 18 more times since then, though yesterday's close above 10,000 was its first since May 2002.

In yesterday's Big Board session, advancing issues outpaced decliners more than 3-to-1. Consolidated volume was moderate at 1.81 billion shares, compared with 1.86 billion traded Wednesday.

Dr. Mark Spears, a Lake Mary, Fla., physician, said he is "absolutely" encouraged by the latest increase by the Dow.

"It makes me feel better about taking a risk and getting back into the market," Spears said. "A year ago, I had losses across the board in my 401(k)."

For Steven Young, chief investment strategist for Banc of America Capital Management, round numbers in stock indexes usually are not very significant — but this time may be an exception.

"To me, it's significant only when the level and the fundamentals converge," Young said. Fundamentals include the basic finances of a company on which profits ultimately depend.

"And I think right now they're converging," Young said.

Young and most other Wall Street professionals don't pay that much attention to the Dow. They focus on the much more broadly based indexes, such as the S&P 500 index — a basket of 500 stocks from across the spectrum of publicly traded stocks — to get a sense of where the markets are likely to head.

"Each time the S&P 500 hits this number — 18 times forward-looking earnings — it stalls," Young said, referring to the stocks' price-to-earnings ratios and the point at which their per-share prices amount to 18 times their average annual profits per share.

That's the real reason the Dow has been so tentative about breaking through 10,000, Young suspects. "It's going to take more earnings or another great economic number" to push stock prices significantly higher, he said.

Market corrections — temporary declines in a generally rising market — have been mild this year because economic growth has been strong, Young said.

"But we think growth rates are going to decelerate" next year, he added, "so corrections could get a little deeper next year."

The Associated Press contributed to this report.