Well, how about that.
After days of giving it a valiant effort, the
Dow Jones Industrial Average soared through the 11,000 mark today, closing above this level for the first time since Sept. 14, 2000.
And for the first time in many months, the market recalled the days of breezy rallies,
when there never was a cloudy day. "Eighteen times, this market has tried to break above 11,000 and could not do it," says Gary Kaltbaum, technical analyst at
. Now, "the new high list is expanding and a lot of stocks that put in long-term lows are breaking out of important trading ranges."
Rallies that have driven stocks higher in recent months haven't exactly had a lot of teeth, certainly not when compared to today. They've been mostly a reaction to selloffs or to surprise interest-rate cuts, or to some combination of the two. After a pause, it was typically back down again for the market after the Dow topped out just short of 11,000 and the
S&P 500 index hit 1270.
Today, the market actually extended an earlier rally -- and both indices broke through these resistance points, levels at which sellers have materialized to drive the averages back down. Dow 11,000 became one of these
ceilings in the last month. But it was breached today, and investors seemed confident the move would prompt money managers to put more money into the market.
If activity picks up, this would be a marked change from the past few weeks of stagnation and quietude that were characterized by the major market averages sashaying in place. Volume increased dramatically today, with 1.3 billion shares traded on the
New York Stock Exchange, a fairly heavy level of trading and much higher than the average volume of the past few weeks. This is an indication of increased optimism in the market since investors stepped up their buying activity.
Fund managers and analysts believe today's move above Dow 11K heralds the beginning of another steady rise in equities, founded on the general belief that the economic landscape will turn more favorable by the end of this year.
In a way, today's activity may be a way of telling the
Federal Reserve it has
done its job. Yesterday, the market barely shrugged when the committee lowered rates by 50 basis points -- its fifth rate reduction since the beginning of the year. Short-term rates are now 2.5 percentage points lower than on Jan. 1.
"People are starting to discount the probability that a 250-basis-point drop in short-term rates is going to lead to a nice recovery probably by the fourth quarter," says Bob Lee, senior vice president of
in Burlington, Vt.
Today, after a favorable
inflation report, the market rallied and gained strength as the day went on. It exploded in the latter stages of the session. Before the opening bell, the
reported that the
Consumer Price Index
rose 0.3% in April, a lower rate of increase than was expected by economists.
Other indications of growing confidence in an economic recovery were present today, including strength in cyclical stocks and retail stocks. Notable names hitting 52-week highs included cyclical stocks that do well when there's anticipation of economic recovery, including
. "Stocks that are tied to fortunes of the economy are working, and that's the predictor of the future that we have," says David Brady, senior portfolio manager of the
Stein Roe Young Investor Fund
Just a Number
Of course, not everyone is entirely optimistic about today's activity. Dow 11,000 is just a number, after all, and the fundamental economic picture hasn't changed much. The difference in the last month and a half has been mostly one of sentiment, the thinking that, ultimately, corporate earnings will improve largely because the Fed's rate cuts will work their way into the economy in the second half of the year -- and consumers will continue to spend money.
But the landscape for corporate profits isn't much better than fragile. Earnings, which are already significantly lower across the board, will be poor in the second quarter and likely also in the third quarter. Second-quarter earnings warnings are just beginning to show up.
Among investors, there's great anticipation that the market will ultimately improve. But companies haven't quite confirmed that the end-of-year recovery that's been much talked about is actually going to take place. Of course, the market is a discounting mechanism and looks to the future, but some pros worry it may be looking too far ahead. "You've got a lot of numbers coming soon, and I think the market has to see what these show, and then digest it," says Steve Carl, head of equity trading at
To others, however, the insecurity about the economy will only prove a buying opportunity -- one that others think they can't afford to miss.