At 11,000, Dow Seeks a Revival
Update from 4:16 p.m. EST
The Dow Jones Industrial Average has risen from the dead, closing above 11,000 for the first time since June 2001.
Monday's advance above the psychologically important 11,000 level has the potential to create some buzz and excitement, a nice change as the blue-chip index had fallen out of favors over the past several years. The Dow even fell 0.6% in 2005, its first annual loss since 2002. The Dow's last attempt to breach the key level, in March 2005, quickly fizzled away.
But on Monday, at least, the Dow managed to hold onto its gains and closed at 11,009.26, adding 49.95 points, or 0.5% on the day. It earlier touched an intraday high of 11,020.The S&P 500 rose 0.35% to 1289, and the Nasdaq Composite gained 0.6% to 2318. "It will be important psychologically to show that the Dow can stay above 11,000 this time around," says Owen Fitzpatrick, head of the U.S. equity group at Deutsche Bank. But in a market that's hungrier for real catalysts than for symbolism, fourth-quarter earnings will take precedence in the weeks to come, according to Michael Malone, trading analyst at SG Cowen. In a cautionary portent, Alcoa (AA) kicked off the season with disappointing results after the close. Alcoa was down 3.8% in after-hours trading, after closing with a daily gain of 1.2%. The shortfall was apparently linked to production disruptions after Hurricane Katrina. The Dow has long been shunned by institutions and funds alike, which prefer to benchmark their portfolios and performance with broader indices such as the S&P 500. Thoe indices are less susceptible to the individual stories and performance of the Dow's 30 component stocks. But the Dow has remained a favorite indicator for the broader investing public. "Dow 11,000" will be on newspaper headlines on Tuesday. The subject can launch a conversation, at least at some cocktail parties, and it may therefore generate broader interest from retail investors. To attempt to predict whether the blue-chip index is poised to hold onto its gains this year, it helps to see why it has underperformed in recent years, especially in 2005. As a large-cap index, the Dow has come to symbolize sleepy, big corporate America during the tepid economic recovery that began in 2003. Its advance was also capped, many believe, as the Federal Reserve began raising rates in 2004. Also, price-to-earnings multiples for mega-cap stocks have been compressed by expectations that continued rate hikes would dampen growth and profits in the future, according to Fitzpatrick.
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