http://online.wsj.com/article/SB125556534569686215.html
Here we are again: the same place we were March 1999, December 2003 and various points in between. We stand, for the first time in a long time, with the Dow Jones Industrial Average rising above 10000 – 10015.86 at Wednesday’s close to be exact — and we are left wondering the same questions we did years ago: is it just a temporary rush higher or a new floor for the great heights to come?
If the last decade taught us anything, it’s that whether the Dow is at 9999 or 10001, it only indicates that it will most certainly not be there the next day.
The business of predicting the stock market is better left to those foolish enough to think they can. Show investors a raft of positive economic and earnings data and watch them sell on the news. Show those same investors J.P. Morgan Chase & Co.’s worsening loan losses and watch the stock add 3%, as it did Wednesday.
Those of us in the media who watch the market love to make a big deal about how an index has reached a new round number. For us, it’s a big occasion like getting a new pope, president or haircut. These things don’t happen very often, we say.
Wall Street, with the help of the media, also likes create meaning where none exists. The Dow breaking 10000 is, we’re told, a psychological barrier. But, other than the use of pop psychology parlance, what exactly does that mean? Have we found our inner bull or bear?
In its own alternative-universe way, it all makes sense. Up is down and down never happened. We’ve spent the last decade spinning our wheels only to find we were walking in place, even though the Dow swung from a high of 14164 in 2007 to the low of 6547 in March 2009.
The swings aren’t that astonishing given the tiny pool of 30 companies that make up the Dow. But look at a chart of the S&P 500 with its much broader swath of America’s corporate landscape. The volatility is just as extreme.
All of this ruminating on markets lurching forward and back is a distraction to a decade of lost innocence. Ten years ago, brokers told us to expect an average gain of 7% annually for our buy-and-hold stock portfolios and steady 5% gains for our real estate investments.
You might still be doing well if you bought your house early in the decade. If you bought between 2004 and 2008, when a wave of mortgages were made, you’re probably lucky to be sitting on break-even or a small loss given the fall in the Case Shiller Composite Indexes.
The stock market hasn’t been much better. If you invested $100 in the S&P 500 at the end of the last decade, you’re happy with Dow 10000 but still hoping for a 34.5% rally before year end — just to break even. You’ll need a staggering 72% rally when adjusting for inflation.
Just about everything has passed the stock market. In 1999, crude oil was $16.44 a barrel compared to $74.80 today Gold was $280. It’s about $1,064 today. On the bright side, the Dow’s 13% decline looks better than the dollar, which has lost 28% of its buying power.
The rally that brought us 10000 on Wednesday is full of doubts. By some measures, stocks are tremendously expensive. During the great bull runs of the 2000s, the price-to-earnings ratio of companies in the S&P 500 Index was between 20- to 30-to-1. At the start of October, the ratio was 140-to-1, on an as-reported basis, which includes writeoffs. When those one-time items disappear, that ratio is likely to revert to more-normal levels, although still expensive.
Even after some better-than expected earnings reports for the most recent quarter, something’s got to give.
Despite the fervor, there are still trillions on the sidelines in money-market funds and many investors continue to be skeptical of the market.
In September, investors pulled $11 billion more from domestic stock mutual funds than they put in — the biggest monthly outflow since March, the month that the bear market hit bottom. This trend continued for the first five trading sessions of October, when an additional $4.1 billion net was pulled out, according to Trim Tabs data cited by MarketWatch’s Mark Hulbert.
If the Dow crossing 10000 has some of those investors worried they’re missing the rally and contemplating a move off the sidelines, then we may soon be swooning about the Dow breaking through the psychological barrier of its all-time high. After that we can contemplate something that matters, like a haircut.
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thanks to coolie for the link
stayed over 10k for the second day..but with adjusting to inflation its only 7500 in real terms
401
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