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blue-chip index above 10,000, investors are mulling whether the
stock market rally is now over or just getting started. The rise
of the Dow Jones Industrial Average above 10,000 sparked a spate of
celebrations, but also provoked some scepticism about whether the
market has gotten ahead of the economy and corporate earnings.
The market had already begun a pullback with a sell-off Friday, and
the direction may be determined by the raft of corporate earnings in
the coming week and economic reports, notably in housing. In the
week to Friday, the blue-chip Dow climbed 1.33 per cent to end at 9,
995.91 as it failed to hold above the key level of 10,000. The
Standard & Poor's 500 broad- market index advanced 1.51 per cent to
1,087.68 and the tech-heavy Nasdaq composite added 0.82 per cent on
the week to 2,156.80. Gains over the past week were inspired by
better-than-expected earnings from key firms including JPMorgan
Chase, Goldman Sachs and Google, among others. But the mood was
dampened by disappointing results later in the week from Bank of
America and General Electric. Fred Dickson, chief market
strategist at DA Davidson & Co, said the 10,000 level on the Dow is
'a signpost on the investment highway marking a significant distance
recently covered, but not offering any clues about the market's
speed limit or upcoming opportunities or obstacles.' 'A milestone
such as 10,000 may trigger some pre-programmed selling, but on the
other hand it should provide a renewed sense of confidence that the
six month market rally is real and that investors should see
continuing incremental improvement in the prospects of the US
economy,' he added. Some say the recovery of the Dow to the levels
of just after the collapse of Lehman Brothers last year — but still
well below 2007 records — is a sign that the economy is returning to
normal. 'The speed of recovery in both global asset prices and the
global economy has far surpassed even the most optimistic forecasts
prevailing in the spring of this year,' said Andrew Spence at TD
Securities. 'Looking out over the next six months, the issue is
whether private sector demand can pick up the slack as policy
stimulus peaks — and here there is a significant risk that current and
high growth expectations will be disappointed,' he added. Bill
George, a professor of management practice at Harvard Business
School, said the 10,000 level is nothing to get excited about.
'This purported milestone isn't a victory. It's nonsense,' he said.
'We are far from out of the woods. Large companies are still laying
off employees. When we cross the 10 per cent unemployment line,
consumer spending may contract even further.' But Julian Callow at
Barclays Capital said economic and corporate reports have been
getting better, suggesting better momentum in the US and other major
economies. 'Part of the reason to pay close attention to earnings
is that profitability tends to lead investment,' he said.
