Dow Jones hits 10,000 for the first time in over a year
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The Dow Jones has topped 10,000 points for the first time since October 2008, marking an important step toward the end of the financial crisis, according to analysts.
AFP - With the Dow Jones Industrial Average hitting 10,000 for the first time since October 2008 on Wednesday, the US stock market appears to have weathered the crisis provoked by the collapse of Lehman Brothers last year.
The key index rose to 10,001.58 at about 1:30 pm (1730 GMT) before slipping back below the symbolic threshold minutes later.
The market still remains well below its record highs, suggesting considerable uncertainty about the sustainability of a recovery from recession, analysts said.
The 10,000 level "is an important emotional threshold," said Sam Stovall, analyst at Standard and Poor's.
"It makes people feel that the economy is recovering and that the stock market is recovering also."
Others point out that the Dow's return to the 10,000 level first hit in 1999 means the market has essentially gone nowhere for a decade. And it remains well below its all-time high of 14,164.53, reached in October 2007.
While the Dow is the most widely monitored index, some analysts say others like the S and P 500 -- the largest US firms --- is more representative of the overall economy. That index also remains some 30 percent below its 2007 record high.
The market has been on a roller-coaster ride for the past two years. After falling some 50 percent from its 2007 highs, the Dow has recovered more than 50 percent since hitting bear market lows in early March.
"The most important factor in what's happened economically (and) in the market over the last year has been a combination of the Federal Reserve's and the federal government's desire to put a lot of stimulus into the economy," said Nicholas Colas, chief market strategist at ConvergEx, a global agency brokerage.
"That has worked. We still have to see how durable the recovery is, and how permanent it is, but for the near term, the very short, term economic numbers look decent."
The economy is still struggling to emerge from its worst recession in decades, with unemployment near 10 percent and growing. And some fear that high unemployment will dent a recovery, and possibly lead to a double-dip recession.
"Yes, the US economy is doing better, but it remains very fragile," says Al Goldman, market strategist at Wells Fargo Advisors.
"There is a big risk that oil prices will leap up if there is anticipation of some conflict with Iran. If so, our fragile economy would likely soften again," he said.
"Also, the very soft labor market says the consumer, and thus overall economic growth, will not be strong in 2010."
Goldman and others say that crossing the 10,000 barrier may be important psychologically, but that the market may need to pause to curb speculative fever.
"Dow 10,000 is an upside magnet, and decent third-quarter earnings could also help very short-term," Goldman said.
"A normal 10 percent or so correction would hurt our sleep pattern but be healthy for the stock market."
David Rosenberg, chief economist and strategist at Gluskin Sheff, said the recession is still biting and that the main reason profits have recovered is aggressive cost cuts by firms. But this means fewer jobs and weaker overall consumer demand.
"Via relentless cost-cutting moves, executives are saying that they are hesitant to reinvest such profits into their businesses," Rosenberg said.
"This strategy is being deployed by so many firms that it is having a broad-based dampening impact on private aggregate demand and hence corporate revenues -- enticing firms to take even more costs out of the system," he said.
"All we know is that this process is not sustainable."
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