Posted on: Wednesday, December 22, 2004
Dow has highest close since June 2001
By Adam Shell
USA Today
NEW YORK — Santa delivered an early gift to Wall Street yesterday: a money-making rally that propelled the Dow Jones industrial average to its highest close in 3› years.
"You had a lot of company-specific problems in a concentrated index of 30 stocks," says Richard Moroney, editor of the newsletter Dow Theory Forecasts.
As a result, the Dow is the last of the major U.S. stock indexes to top highs hit earlier in the year. Last week, both the Standard & Poor's 500 and the Nasdaq composite broke out to new highs, and small-company indexes have been setting new highs throughout 2004.
Yesterday's rally, analysts say, can be attributed in part to the normal seasonal tendency of stocks to increase in value at year's end. Wall Street historically enjoys a "Santa Claus rally" in the final six trading days of the year and the first three days of the new year. Since 1969, the S&P 500 has enjoyed an average gain of 1.7 percent in that period, "Stock Trader's Almanac" says.
The Dow's ability to rise despite its PR problems is bullish, money managers say. In fact, the combination of the Dow industrials notching a multiyear high on the same day as the Dow transports average confirms that the uptrend started in April 2003 is still intact, says Moroney, citing the Dow Theory on stock market trends.
"The rally portends (good) things to come," says Michael Farr, president of money management firm Farr Miller & Washington. The surge in stock prices that began before the presidential election is likely to carry over into the new year. And the Dow, which has been playing catch-up for most of 2004, could be a market leader in 2005, he adds.
Yesterday, the Dow gained 98 points to 10,759, its best close since June 13, 2001. News about Dow components Pfizer and Intel helped. Intel rallied 3.5 percent after a brokerage upgrade. Pfizer rose 2.8 percent after a new study quieted concerns about its painkiller Celebrex. The Dow is up 2.9 percent for the year, still far behind the S&P 500, up 8.4 percent, and the Nasdaq, up 7.4 percent.
Citing an improving outlook for the economy, record earnings in 2004 for the S&P 500 and plenty of cash on the sidelines, the market is entering 2005 in "very good condition," says Ken Tower, chief market strategist at CyberTrader.
"Earnings growth will surprise on the upside next year, which should lead to a decent return for stocks," adds Michael Bee, an equity strategist at Boyd Watterson Asset Management LLC in Cleveland. "There is still some momentum left in the market."
Bloomberg News contributed to this report.
The 2004 high provided a boost to the blue-chip gauge's image, which has taken a beating from a spate of bad publicity swirling around some of its best-known components. The Dow's price performance has been hurt by the Vioxx scandal at Merck, questions about the safety of one of Pfizer's arthritis drugs, bid-rigging allegations involving insurer AIG and weak sales at corporate icons General Motors and Coca-Cola.
