Correction to This Article
An Oct. 4 article about the Dow Jones industrial average rising to a record high misstated the title of Bob Doll and incorrectly identified his firm. Doll is vice chairman and global chief investment officer for equity at BlackRock Inc.

Dow Hits New High After a Long Recovery

By Brooke A. Masters
Washington Post Staff Writer
Wednesday, October 4, 2006

NEW YORK, Oct. 3 -- The Dow Jones industrial average leaped into record territory Tuesday, highlighting Wall Street's long recovery from the popping of the technology bubble, the 2001 terrorist attacks and a wave of corporate scandals.

The new closing high of 11,727.34 highlights how much things have changed. In January 2000, it was all technology all the time. Internet firms without real business plans and pajama-clad day traders were the glamour kids. Then the bubble burst, Enron Corp. and WorldCom Inc. collapsed, and small investors ran for the hills.

These days, stocks are relatively cheaper, in comparison with corporate profits and with alternative investments, such as gold and other commodities. Blue-chip stocks and unspectacular businesses such as health care and chemical manufacturers have helped lead a slow slog from the troughs of 2002.

"We're hopeful we can pass this milestone and move on. It closes the chapter on the Internet boom," said Andrew M. Brooks, head of equity trading for T. Rowe Price Group Inc. "Most investors are feeling pretty well-served. Not every stock is up, but it's been a pretty nice market."

The Dow, a collection of 30 blue-chip companies that is the nation's oldest stock indicator, had crossed its highest previous close of 11,722.98 several times over the past week but had repeatedly slipped back after investors sold stocks to lock in profits before closing time. The index closed up 56.99 Tuesday.

Investors were buoyed by falling oil prices -- crude fell to less than $59 a barrel for the first time in more than seven months -- and a growing consensus that interest rates have stopped rising for the near term, market-watchers said.

The Dow may be moving into new territory, but the broader indicators have not entirely recovered from their technology-stock hangover. The Standard and Poor's 500-stock index closed Tuesday at 1334.11, up 2.79, but well under its March 2000 mark of 1527.46.

The Nasdaq composite index, which is heavy with technology stocks, closed yesterday at 2243.65, up 6.05 for the day, but it is still worth less than half its 2000 peak of 5048.62. That difference reflects the fact that the Nasdaq rose higher and fell farther in the early 2000s. Many of the technology stocks that survived the crash are doing well, but they are no longer seen as the sure bet they once were.

Even the Dow's record is not quite as impressive as it seems. If inflation is taken into account, the Dow has to rise another 2,150 points before it will set an all-time high. But there have been major positive changes. The current stock market rise is much more broadly based than the one that fueled the record in 2000, and most market analysts think share prices are more firmly grounded in reality.

The S&P's 500 companies are trading at 17.5 times last year's earnings, compared with a price-to-earnings ratio of 28.4 in the first quarter of 2000, S&P chief investment strategist Sam Stovall said. That is largely because many companies have seen their earnings rise much more quickly than their stock price. Stocks on average are also paying higher dividends compared with their price than they did in 2000, he said.

"We have less of an extreme today. Back then, it was the screaming tech stocks, and everything else was marking time," said Bob Doll, president and chief investment officer of Merrill Lynch Investment Management. "This is somewhat healthier. Back then, it was just a few stocks that were leading the way, and unless you owned those stocks, it was hard to keep up. . . . Today there is no leadership. It's one group today and another tomorrow."

There are other signs that suggest this rise in the stock market is less speculative than the one that crested in 2000.

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