Dow Tops 10,000, Fueling Debate on Its Future

Ianthe Jeanne Dugan and Robert O'Harrow Jr.
Tuesday, March 30, 1999; 12:00 AM

NEW YORK, March 29 --The Dow Jones industrial average closed above 10,000 for the first time today, creating a new benchmark for the longest-running bull market in history and underscoring the optimism of new investors dazzled by the high-tech boom and the nation's robust economy.

Just one year after first hitting 9000, the widely watched barometer of 30 blue-chip stocks plowed through the five-digit mark in mid-afternoon and hung on until New York Mayor Rudolph Giuliani rang the closing bell at the New York Stock Exchange.

The Dow, which had captivated market watchers by bobbing around 10,000 for two weeks, rose more than 184 points, or 1.9 percent, to 10,006.78. Investors -- including the thousands of mutual funds that have lured many newcomers to the stock market in the past decade -- bid up share prices on a burst of enthusiasm over corporate mergers and earnings.

But crossing the threshold also spurred on a debate raging among market professionals. Many deride the Dow average as an imperfect proxy for the market, though they acknowledge its hold on the popular imagination. Yet analysts also disagreed sharply over whether today's milestone is proof that the market is headed even higher -- or whether it masks a broad-based decline that has affected all but the biggest stocks.

With more Americans than ever investing their life savings on Wall Street, the answer matters a lot. In 1984, when the current bull market was two years old, about 12 percent of American households were invested in mutual funds, compared with 44 percent today, according to the Investment Company Institute, a trade group.

Many Americans indirectly hold stock through pensions and other retirement accounts, and small investors are increasingly trading stock themselves using the Internet.

"Generally, these numbers are just numbers. There's nothing more magic about 10,000 than 9997.6," said David Wyss, chief economist at Standard & Poor's DRI forecasting unit. "There is a psychological element, though. People sit up and take notice."

The Standard & Poor's 500-stock index, a broader measure of the market than the Dow average, today jumped 27.37 points, or 2.1 percent, to 1310.17 and the technology-heavy Nasdaq composite index rose 73.67, or 3 percent, to 2492.84.

Wall Street naysayers say the rest of the stock market has slowly eroded while the media and much of the investing public have remained fixated on the Dow average. Mark Arbeter, chief technical analyst at Standard & Poor's, argued that while the Dow is climbing, "the underpinnings of the market are slowly getting whittled away." He notes that two-thirds of the stocks on the New York Stock Exchange are below their 200-day moving averages, which means they are on downward trends. More stocks are hitting 52-week lows than are hitting 52-week highs.

Another ominous sign: The performance gap between the top blue-chip stocks and small-company stocks is enormous. The Dow has risen by 8.99 percent for the year, while the Russell 2000 index of small stocks has dropped 5.26 percent.

For instance, Community Bank System Inc., a string of New York community banks, hit an all-time low last week on the New York Stock Exchange, whereas Citigroup, the financial services giant that is one of the 30 Dow stocks, recently hit an all-time high.

Some analysts also are troubled by the historically high price of stocks relative to company earnings. At the end of 1972, for example, companies in the Dow sold for 15.2 times earnings; at today's close, that number was nearly 25.5 times earnings. For the companies that make up the S&P 500, the ratio was 25.2 today.

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