March 30, 1999

The following is the Washington Post's story on DOW 10,000.

Dow Tops 10,000, Fueling Debate on Its Future

By Ianthe Jeanne Dugan and Robert O'Harrow Jr.
Washington Post Staff Writers
Tuesday, March 30, 1999; Page A01

NEW YORK, March 29-The Dow Jones industrial average closed above 10,000 for the first time today, creating a new benchmark for the longest-running bull market in history and underscoring the optimism of new investors dazzled by the high-tech boom and the nation's robust economy.

Just one year after first hitting 9000, the widely watched barometer of 30 blue-chip stocks plowed through the five-digit mark in mid-afternoon and hung on until New York Mayor Rudolph Giuliani rang the closing bell at the New York Stock Exchange.

The Dow, which had captivated market watchers by bobbing around 10,000 for two weeks, rose more than 184 points, or 1.9 percent, to 10,006.78. Investors -- including the thousands of mutual funds that have lured many newcomers to the stock market in the past decade -- bid up share prices on a burst of enthusiasm over corporate mergers and earnings.

But crossing the threshold also spurred on a debate raging among market professionals. Many deride the Dow average as an imperfect proxy for the market, though they acknowledge its hold on the popular imagination. Yet analysts also disagreed sharply over whether today's milestone is proof that the market is headed even higher -- or whether it masks a broad-based decline that has affected all but the biggest stocks.

With more Americans than ever investing their life savings on Wall Street, the answer matters a lot. In 1984, when the current bull market was two years old, about 12 percent of American households were invested in mutual funds, compared with 44 percent today, according to the Investment Company Institute, a trade group.

Many Americans indirectly hold stock through pensions and other retirement accounts, and small investors are increasingly trading stock themselves using the Internet.

"Generally, these numbers are just numbers. There's nothing more magic about 10,000 than 9997.6," said David Wyss, chief economist at Standard & Poor's DRI forecasting unit. "There is a psychological element, though. People sit up and take notice."

The Standard & Poor's 500-stock index, a broader measure of the market than the Dow average, today jumped 27.37 points, or 2.1 percent, to 1310.17 and the technology-heavy Nasdaq composite index rose 73.67, or 3 percent, to 2492.84.

Wall Street naysayers say the rest of the stock market has slowly eroded while the media and much of the investing public have remained fixated on the Dow average. Mark Arbeter, chief technical analyst at Standard & Poor's, argued that while the Dow is climbing, "the underpinnings of the market are slowly getting whittled away." He notes that two-thirds of the stocks on the New York Stock Exchange are below their 200-day moving averages, which means they are on downward trends. More stocks are hitting 52-week lows than are hitting 52-week highs.

Another ominous sign: The performance gap between the top blue-chip stocks and small-company stocks is enormous. The Dow has risen by 8.99 percent for the year, while the Russell 2000 index of small stocks has dropped 5.26 percent.

For instance, Community Bank System Inc., a string of New York community banks, hit an all-time low last week on the New York Stock Exchange, whereas Citigroup, the financial services giant that is one of the 30 Dow stocks, recently hit an all-time high.

Some analysts also are troubled by the historically high price of stocks relative to company earnings. At the end of 1972, for example, companies in the Dow sold for 15.2 times earnings; at today's close, that number was nearly 25.5 times earnings. For the companies that make up the S&P 500, the ratio was 25.2 today.

But others choose to focus on the positive, saying that crossing the plateau will bring even more money into the market. Peter Canelo, investment strategist for Morgan Stanley Dean Witter, said today's rally shows "there's a broadening going on." He predicted that it would continue on Tuesday and well into the future, in part because a psychological wall crumbled when 10,000 was reached. "It may stimulate what has been a rather middling flow of money into mutual funds," he said.

"It's no longer a ceiling. It's a floor," Ralph Acampora, chief strategist at Prudential Securities, gushed about the Dow's close today, the ninth time the index has crossed a 1,000-point threshold since the bull market began. "As time goes by, we'll be looking down at it."

"What we are looking at is confirmation in the stock market that the U.S. economy is in excellent condition," said Abby Joseph Cohen, chief market strategist for Goldman Sachs & Co., who was mocked in some quarters for sticking to her prediction during last year's downturn that the Dow would reach 10,000. "I believe that bull markets continue until economic deterioration. I see no economic deterioration."

The Dow average was created 130 years ago by Dow Jones & Co. to measure a cross-section of venerable industrial companies, and it has been frequently rejiggered to reflect changes in the economy. Still, it reflects only a fraction of the approximately 5,000 publicly traded corporations based in the United States.

"It ain't perfect, but it's all we got," said Acampora, the Prudential Securities strategist, who is among a new breed of self-styled market watchers who, with the help of television and the Internet, can move the Dow with their words. "I was jumping up and down. I couldn't ask for anything more." He expects the Dow to lurch toward 11,500 this year and double within eight years.

This sort of talk riles Richard Strozinsky, an engineer at Stanford University who spends three hours a day researching and trading stocks, posting his findings on an Internet site, and helping friends and family pick stocks. "I heard Ralph Acampora on TV saying: Who cares if it's just big-cap stocks?" he steamed. "Richard cares. If people don't start paying attention to all these lesser-known companies, this whole thing is going to come tumbling down."

Despite its narrow focus, the Dow average has become the most visible stock market measure in the nation, and its every surge and flop is documented around the world. On the Internet, chat-room discussions in dozens of different languages have shared a common thread in recent weeks: "10,000."

"Only the TV and radio stations believe the DOW has any relevance to market valuation in the 1990s," one investor wrote recently. "Just look at the 'Dow Industrials' and explain what American Express, Coca-Cola, McDonald's and Disney have to do with making steel."

Responded John Prestbo, who runs the average as editor of Dow Jones Indexes and helped swing the gavel today at the NYSE closing bell: "I think moving from 40 to 10,000 in its history pretty adequately describes the growth of the American economy."

Just as divisive is the question of what comes next. Many analysts predict the market will stumble around at 10,000, because many investors wanted to ride the wave to the milestone and then back off. Many computerized programs controlling huge blocks of stock were programmed to sell at 10,000, pushing the number back for days before the average was swelled by investors wishing to buy.

After the market closed, Coca-Cola, one of the Dow stocks, said worldwide sales volume had fallen in the first quarter, news that sent its stock tumbling in after-hours trading -- and would have knocked the Dow average below 10,000 if the news had been released earlier.

Even small investors admitted they wanted to taste the magic number and then retreat. "I'm going to use Dow 10K as an excuse to sell, and then buy back when stocks go back down," said Calvin Lui, 23, a communications major at the University of Michigan. The recent immigrant from Hong Kong made a bundle last year investing his part-time salary from a campus gift shop in blue-chip stocks.

With a profitable eight months under his belt, he said he has become a stock-investing guru for his parents and his friends. "My track record has been quite good," he said.

Staff writer Steven Mufson in Washington contributed to this report.

The Long Climb of the Dow

Oct. 19, 1987: Dow dives 508 points to 1738.74, about 34 percent below its record set two months earlier.

July 1990: Dow makes a correction amid tension before the Gulf War invasion.

Oct. 27, 1997: Dow drops 554.26 points, about 7 percent, to 7161.15.

Yesterday: 10,006.78

Beyond the Dow

The Dow Jones industrial average is only one of many measures of the stock market's fortunes.

Standard & Poor's 500 index

A capitalization-weighted* index of 500 stocks designed to measure performance of the broad domestic economy.

Market cap $10.1 trillion

Yesterday's close 1310.17 (up 27.37)

Percent change since 12/31/91 214%

Nasdaq composite index

A broad-based capitalization-weighted index of all Nasdaq National Market and SmallCap stocks.

Market cap $2.8 trillion

Yesterday's close 2492.84 (up 73.67)

Percent change since 12/31/91 325%

Dow Jones industrial average

A price-weighted average of 30 actively traded blue-chip stocks that generally are the leaders in their industry and are listed on the New York Stock Exchange.

Market cap $2.6 trillion

Yesterday's close 10,006.78 (up 184.54)

Percent change since 12/31/91 216%

Russell 2000 index

A measure of the stock price performance of small companies, composed of the smallest 2,000 companies in the Russell 300 index.

Market cap $1.6 trillion

Yesterday's close 399.76 (up 5.84)

Percent change since 12/31/91 110%

* A capitalization-weighted index is a one weighted toward companies with a larger market value, or capitalization.

© Copyright 1999 The Washington Post Company