Many experts see the Dow breaking the 10,000 mark in the coming days or weeks. When the index passes that milestone, will it be a psychological victory or an actual indicator of real change in the markets?
In her most recent bulletin in late August, analyst Amanda Crumb of Birinyi Associates says the Dow will see 10,000 any day now. She believes the five-digit number will lift the spirits of some investors who have been afraid to reinvest in the markets. Says Crumb: "The stocks have been gaining for a while, and the stock market is telling you that the recession is over. . . . People aren't giving the market enough credit right now. It's strong."
U.S. News also caught up with two economists whose bold predictions a few months ago don't seem so outrageous anymore.
Jeffrey Saut of Raymond James & Associates says he remembers how portfolio managers in the late '70s and early '80s were scared to keep buying once the Dow hit 1,000—for the first time—because it was uncharted territory for the market. Now, he says, people are being overly cautious all over again. "I was on CNBC on March 2, and I said, 'The bottoming process that began in October is complete. We think the market bottoms this week, and we are all in.' I have averred ever since then that I'm trading this like it's a new secular bull market."
Citing more evidence, Saut says, "The Economic Cycle Research Institute's data that came out last week showed the strongest economic recovery in the history of their data that goes back generations. I have repeatedly told people, 'Look, the recession we've just been through is an anomaly.' "
Well-known market optimist Brian Westbury of First Trust Advisors couldn't agree more.
Says Westbury: "I'm looking at the economy and the market hitting panic lows and bouncing back in a V-shaped recovery. We're heading back to pre-Lehman numbers and prepanic levels. . . . Even at 10,000, the market is still undervalued considerably, probably on the order of 30 percent. . . . I don't know how long it will take, whether it takes a year or six months, but I suspect we're going to 12,000 on the Dow before this is over."
Both agree, though, that 10,000 is just a nice, round number that doesn't really have much significance. As for how far the Dow could go? The two believe the five-digit number won't scare investors away from pouring more money into the markets. Wesbury says the future of the Dow average depends on a variety of factors of government policy, such as potential tax hikes related to legislation like carbon emissions cap-and-trade and healthcare reform as well as the possibility of more regulation of Wall Street. Wesbury adds, "What if we don't get healthcare or cap-and-trade? If they fail and tax hikes are put off because of an election year, then this market could go even higher than that."
Regardless of what happens, there won't be nearly as much hype surrounding the event as there was a little more than a decade ago when then New York Mayor Rudy Giuliani was in attendance to ring the closing bell at the New York Stock Exchange and toss out "Dow 10,000" hats to signify the first time the Dow closed above 10,000, on March 29, 1999.