Dow nudges peak of six years ago
The Dow nearly reached its pre-9/11 highs last week, but many on Wall Street remain cautiously optimistic about further gains.
The US stock market is finally nearing the peak levels it reached in 2000 – before a recession, terrorist attacks, and surging oil prices exacted a toll on American financial wealth.
As bull markets go, this one has been slow and faltering, but the comeback is nearly complete.
In the past two months, the Dow Jones Industrial Average has jumped about 8 percent. It's welcome news for investors, but more broadly it reflects a vote of confidence for America's economy at a delicate time.
Some economists worry about a possible recession, especially if the housing market stumbles badly. Others fear that inflation will persist. But the stock market is riding on hope of a more moderate outcome: that the economy can continue growing, if perhaps more slowly, as a housing boom fades and inflationary forces diminish. A recent drop in oil and gasoline prices has bouyed those hopes.
"The background in the economy is pretty good," says Michael Cosgrove, who publishes the Econoclast, a market newsletter based in Dallas. If it stays that way, he says stocks could hit new highs and "we could have a pretty good run in 2007."
If this week's performance matches last week's, the Dow Jones Industrial Average will push through a kind of millennial milestone – the 11722.98 peak reached on Jan. 14, 2000.
The widely watched index of 30 major stocks closed last week at 11560.77, just 162 points or 1.4 percent away from matching its old record. The broader Standard & Poor's 500 stock index was still about 10 percent off its early-2000 level.
Analysts are divided over just how far the current bull run might go. Some say a string of record corporate profits is bound to end as the economy cools. Others say the presence of such bearish sentiment could provide a backdrop for some good gains.
"There's a pretty well-rehearsed bearish story out there," says Max Bublitz, chief strategist of Seneca Capital Management, an investment firm in San Francisco. But that story, he says, is "a little shopworn."
His forecast is for solid but unexciting gains in the short term and next year.
"What we are is kind of defensively bullish," he says. He reckons the S&P 500 index could end this year at around 1360 and next year at 1450, for a price gain of about 9 percent in 15 months.
The bearish view points to a range of challenges: a likely slowdown in corporate profits, uncertainty about the economy and inflation, past history of market declines during the fall months, and concern about US elections or flash points in the Middle East.
Factors such as those have been holding investor sentiment in check. In one way, that could be good news. Stock prices often "climb a wall of worry," in Wall Street- jargon, when investors gradually overcome a pessimistic trading environment to generate marked gains.
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