Analysts cheer slow march
to Dow’s 10,000 benchmark
The index's gradual move is seen
as healthy, but the Nasdaq's jump
to 2,000 brings out some skeptics
NEW YORK >> The Nasdaq composite index reached a milestone in its recovery from the bear market this past week, popping above the 2,000 level before falling back again. And the Dow Jones industrials trekked toward a benchmark of their own, 10,000.
Investors are taking their time as they send stocks to levels not seen since the first half of 2002, and that might be the most encouraging aspect of the market's recovery, analysts say. The deliberate pace of Wall Street's rise shows the market is being driven by fundamentals rather than sentiment, said Richard E. Cripps, chief market strategist for Legg Mason of Baltimore.
"This is a very healthy market, unambiguously," Cripps said. "In a market like this, that is showing some degree of soberness, you know you're not buying into hyped expectations."
The real question, Cripps said, is how much higher investors will push the market over the next several quarters, as expectations rise but year-over-year comparisons become less favorable.
It's already hard to impress investors. The Labor Department announced yesterday that the nation's unemployment rate slipped to 5.9 percent in November, the lowest level in eight months. But stocks fell as investors focused on the negative aspect of the report, which found U.S. companies added only 57,000 jobs in November, far fewer than the 150,000 jobs analysts expected.
With economic data and earnings news generally good, there's little doubt the market can continue to move gradually higher, said Richard A. Dickson, senior market strategist at Lowry's Research Reports in Palm Beach, Fla. But it remains vulnerable to a plethora of external factors, such as the price of oil, the strength of the dollar and global terrorism concerns.
"There's a lot of things that are positive going on, but there's a lot out there that could change it in a hurry," Dickson said. "This is not the Goldilocks economy that we saw five years ago."
But Dickson also expressed concern about the swelling demand for small-cap technology stocks, which have led the rally since March. With so much uncertainty, he said, it's not clear how much longer this group can hold its momentum.
"The thing that amazes me most is that the same kinds of stocks that led the market in '98 and '99 seem to be leading the market again," Dickson said. "It's like, have investors learned nothing at all? How many times do they have to go out and get slaughtered? I don't understand why they are heading toward this same precipice."
The tech-dominated Nasdaq is still down more then 61 percent from its all-time high of 5,048.62, reached March 10, 2000. The Dow is about 15 percent off of its highest point, 11,722.98, reached Jan. 14, 2000, and the Standard & Poor's 500 index is 30 percent shy of its peak, 1,527.46, reached March 24, 2000.
Although the Nasdaq has risen 54 percent since the rally began March 11, no one can predict when or whether it will return to its millennial high. But analysts say the Dow, which has regained 32 percent of its value since March, could easily reach new highs in 2004.
The S&P, which has risen 33 percent since March, may have a tougher road ahead, however, said Thomas F. Lydon Jr., president of Global Trends Investments in Newport Beach, Calif. The S&P also has a high representation of tech stocks.
"I don't think it's impossible that the S&P could hit a new high next year, but that would be a pretty dramatic move from the lows of March," Lydon said.
Historically, bear markets are followed by several good years, particularly during times of economic recovery. The fact that 2004 is an election year also could give the markets a boost, Lydon said. Valuations, especially on the Nasdaq, remain a key concern, however.
"As you look to those who have helped the Nasdaq rebound as much as it has, you have to ask, are we getting ourselves back into trouble?" Lydon said. "I know that's weighing heavily on people's minds; it's a good reminder to diversify your portfolio, so that when there is a correction, you aren't hurt as much by the impact."
The Dow ended the week up 80.22, or 0.8 percent, finishing at 9,862.68. The S&P 500 rose 3.30, or 0.3 percent, during the week, to 1,061.50. The Nasdaq fell 22.44, or 1.1 percent, to close the week at 1,937.82.
The Russell 2000 index, which tracks smaller company stocks, ended the week down 7.50, or 1.4 percent, closing at 539.01.
The Wilshire 5000 Total Market Index, which tracks more than 5,700 U.S.-based companies, ended the week at 10,352.60, up 0.38 from the previous week. A year ago, the index was at 8,629.16.