NEW YORK >> The Dow Jones industrials, out of favor during the go-go tech era, have reasserted themselves as the measure of the stock market's strength. Analysts aren't certain that the blue chips' recent surge foretells a new bull market, but they do believe Dow stocks are the best place to be right now. Blue chips regain luster
By Amy Baldwin
Associated PressWall Street's success has been gauged lately by the Dow and its rallies, including a series of triple-digit gains over the past two weeks. Before traders knew it, the Dow had jumped more than 1,000 points with the help of better-than-expected earnings from components such as General Motors, IBM and Citigroup.
The Dow has advanced 15.9 percent since Oct. 9 when it hit a five-year low of 7,286.27. And, it's the Dow that has the smallest year-to-date loss, albeit still a hefty 15.7 percent. The Standard & Poor's 500 index has dropped 21.8 percent this year, while the Nasdaq composite index has plunged 31.8 percent.
"The Dow has held up the best, and for good reason. It is only 30 stocks -- 30 diversified companies," said Dave Caruso, co-author of the recently released book "Decoding Wall Street."
Still, analysts caution investors against reading too much into the Dow's moves -- after all, it does represent just 2 1/2 dozen stocks. Wall Street professionals pay closer attention to the much larger S&P 500, which is also up smartly, climbing 15.6 percent from its Oct. 9 six-year low of 776.76.
Analysts are most optimistic about the non-tech components of both the Dow and the S&P 500. After years of investing in dot-com and tech companies with business models they didn't understand, investors are shifting back to blue chip standbys such as retailers, utilities and industrials.
"More than ever, people in the future are going to put a lot more care into what they are buying. People are saying, 'We are not going to see the growth that we did in the '90s,"' said Thomas F. Lydon Jr., president of Global Trends Investments in Newport Beach, Calif.
Despite investors' uneasiness about technology after that sector's precipitous losses, tech stocks have also enjoyed a big ride of late. The Nasdaq has soared 19.5 percent since Oct. 9 when it hit a six-year low of 1,114.11.
But analysts are more skeptical about tech stocks' longer-term prospects. Historically, the sector that has led stocks into a bull market and then flamed out hasn't been the one to take Wall Street higher again.
And, analysts predict tech gains will be vulnerable to profit taking. When tech prices rise, investors, scarred by the losses of the past few years, will be inclined to sell.
The average price of Nasdaq stocks was $13.94 as of September, down 75 percent from $55.92 when the stocks peaked in March 2000.
"The Nasdaq will have its moments," said Richard A. Dickson, senior market strategist, at Lowry's Research Reports in Palm Beach, Fla. "You will have periods when there are nice bounces in these stocks, but the problem you have is that these stocks were taken to unbelievable heights."
Analysts said investors also like blue chips these days for the dividends that these stocks offer. The average dividend of Dow stocks is 2.4 percent, comparable to that of S&P companies that pay dividends.
Dividends represent a guaranteed cash return, no small thing following nearly three years of declines. Take GM, which has a $2 per-share annual dividend. While the automaker's stock is down about 27 percent this year, investors who own 1,000 shares can at least count on a dividend payout of $2,000, which they can take in cash or reinvest.
Tech stocks and other high-growth issues typically don't offer dividends because these companies reinvest profits to maximize growth.
The Dow, Nasdaq and S&P ended their third straight winning week, a streak not seen since the three weeks that ended Aug. 23.
For the week, the Dow climbed 121.59, or 1.5 percent, to 8,443.99 after rising 126.65 yesterday.
The Nasdaq had a weekly gain of 43.27, or 3.4 percent. Yesterday, the Nasdaq rose 32.42 to 1,331.13.
For the week, the S&P index rose 13.26, or 1.5 percent. Yesterday, the S&P advanced 15.15 to 897.65.
The Russell 2000 index enjoyed its second straight weekly gain, rising 9.27, or 2.6 percent, after rising 0.80 yesterday. The Russell ended the week at 372.64.
The Wilshire 5000 Total Market Index -- an index that measures more than 5,700 U.S.-based companies -- ended the week at 8,450.64, off 126.86 from the previous week. A year ago, the index was at 10,185.53.