Dow Gets Some Help on 10,000

When the Dow Jones industrial average finally closed above 10,000 for the first time in 18 months, it was thanks to an inadvertent, 6-week-old nudge from the Federal Reserve Board.

The spurt that pushed the Dow to 10,008.16 on Thursday came after the release of the minutes of the Fed’s policy meeting Oct. 28, when the central bank said that low inflation could persist for “the next year or two.” Investors read those tea leaves to mean that the Fed wouldn’t be likely to raise interest rates for a long time to come.

The 6-week-old Fed transcript that cheered investors was made public two days after a fresh Fed statement that was more guarded about inflation. That statement had caused a rally to stall Tuesday -- and the Dow to retreat below 10,000.

“From this perspective,” economist Susan Hering at UBS Securities in Chicago wrote in a commentary Thursday, “the market’s reaction to the minutes appeared overdone.”

Still, the Fed transcript wasn’t the only fuel for the rally Thursday, when the Dow gained 86.30 points, or 0.9%, to finish at its highest close since May 24, 2002.

A Commerce Department report showing stronger-than-expected retail sales for the month of November helped put stocks in positive territory early in the day. There were also some hopeful sales forecasts from computer-chip makers.

Broader market indexes fared even better than the Dow on Thursday, continuing the trend of much of this year.

The Standard & Poor’s 500 index climbed 12.16 points, or 1.2%, to 1,071.21, and is up nearly 22% this year.

As for the technology-dominated Nasdaq composite index, which has struggled in recent days, it rose 37.67 points, or 2%, to 1,942.32. It’s up 45% for the year.

The Dow now is up 20% this year and is a remarkable 37% higher than it was at the bell on Oct. 9, 2002, when it closed at a five-year low of 7,286.27.

Gaining stocks outnumbered losers on the New York Stock Exchange by about 3 to 1 on Thursday. Trading volume wasn’t extraordinarily heavy.

Prices of Treasury securities, which were down early in the day amid disappointing demand at the government’s sale of new 10-year notes, rallied after the Fed minutes were released.

The yield on the two-year Treasury note, the most sensitive to changes in Fed interest-rate expectations, fell from 1.91% on Wednesday to 1.79%, the lowest in three weeks. Yields move in the opposite direction from prices.

Market observers noted the sharp contrast between the current climate and that of May 1999, when the Dow first cracked the 10,000 mark amid the century’s biggest bull market.

“It’s very different this time than in 1999,” said Hugh A. Johnson, chief strategist for First Albany Securities. “That one was a surge driven by euphoria. This time, there’s a high level of guardedness and skepticism.”

Professional money managers typically don’t pay much attention to so-called round numbers such as Dow 10,000, but some said the media attention could spur some cautious investors to take a fresh look at stocks.

“It may be a wake-up call for a few people who haven’t looked at their portfolios lately and may wonder, ‘What did I miss?’ and ‘Is there anything left?’ ” said Barry Hyman, an independent investment strategist based in New York.

Hyman’s answer to the latter question is, yes, there is some opportunity left in the market, particularly in some mega-capitalization Dow stocks such as Microsoft Corp. and drug giant Merck & Co., which have lagged. Microsoft is up 2.9% this year; Merck is down 19%.

In recent weeks there has been a rotation of investment from the hot technology sector into heavy-industry and energy stocks, which has allowed the Dow to gain some ground on Nasdaq. But not everyone thinks that trend will last.

Donald M. Selkin, director of equity research for Joseph Stevens & Co. in New York, noted an observation this week by Cisco Systems Inc. Chief Executive John Chambers that corporate budgets for computer-equipment purchases are on the rise for the first time in several years.

At a time like that, Selkin said, it seems a little perverse for investors to move into steel and chemicals and away from “stocks in the forefront of the economy.”

Ted Weisberg, president of Seaport Securities Corp., said that the harsh economic climate of the last few years may have laid the groundwork for a stock market rise based on solid earnings growth.

Firms that have spent recent years paying down debt and laying off workers are seeing a dramatic snapback in earnings because of their lower costs.

Said Weisberg: “The end result? Dow 10,000.”

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Playing catch-up

The Dow index has lagged most other major market indexes this year.

*--* Pctg.change: Index Thurs. YTD Nasdaq compos. +2.0% +45.4% S&P; small-cap +2.3 +34.4 S&P; mid-cap +1.7 +31.3 Dow transports +1.8 +28.4 Wilshire 5,000 +1.3 +25.0 NYSE compos. +1.1 +23.5 S&P; 500 +1.2 +21.8 Dow industrials +0.9 +20.0 Dow utilities +0.4 +18.1

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Source: Bloomberg News