The Dow Jones industrial average hit a record high Tuesday, inching above a mark not passed since the heady days of early 2000.
The Dow – a powerful symbol of the stock market even though it includes just 30 companies – fell sharply in 2001 and 2002 following the Sept. 11 terrorist attacks and recession. Its recovery has been slow and halting since then, and many market watchers didn’t expect it to hit the high mark this year.
Other market indexes haven’t recovered as quickly as the Dow, which is heavy on large, blue-chip stocks.
Whether or not the Dow’s rally signals a strengthening economy, experts agree the market crossed an important psychological threshold Tuesday.
“People watch the Dow because it’s the Dow,” said Robert G. Bush, president of Eric Forecasting in Denver. “It’s the granddaddy of stock indexes.”
The Dow on Tuesday closed up 56.99 points at 11,727.34, just above the previous record close of 11,722.98, set Jan. 14, 2000. Earlier in the day, the Dow hit 11,758.95, passing the old trading high of 11,750.28, set on the same day in 2000.
The high close capped a three-month stock rally and followed several trading days in which the Dow flirted with the record.
It came as oil prices are dropping and interest rates are stabilizing, both of which should help consumers and the companies that cater to them. Also boosting stocks is continued strong profit performance by U.S. companies.
Investors may be betting that these trends will ease a slowdown in growth and keep the economy out of recession next year, some economists and money managers said.
“The market would not be where it is if it was expecting a recession,” said Vectra Bank economist Jeff Thredgold, who expects the stock market to continue climbing.
After raising interest rates for more than two years, the Federal Reserve held them steady starting in August. Many observers, including Thredgold, expect the Fed to lower rates a notch or two next year.
“Investors are trying to anticipate where the economy will be and where corporate profits will be 12 to 18 months down the road,” said Tom Coxhead, senior vice president and financial consultant with RBC Dain Rauscher Inc. in Denver.
The Dow’s performance, Coxhead said, “indicates the economy will be pretty healthy the next couple years.”
“One caveat that could throw a monkey wrench into it is housing,” he said. “Inventories are up, and prices are softening. The question is, will it be a soft or hard landing?”
Others are not impressed with the stock market’s rally or the Dow’s record high.
“Money is flowing out of small-cap stocks and into large value stocks. The Dow is representative of really large, value-oriented equities,” said David Prokupek, chairman of Denver-based Geronimo Financial. “People are worried about the economy, and they are putting their money in defensive stocks.”
Prokupek’s main economic concern is softening home values, particularly on the coasts.
“Real-estate prices matter, and that hasn’t yet been felt in the economy,” he said.
Last month, U.S. Bank regional economist Tucker Hart Adams signaled a similar alarm, predicting a recession next year driven in large part by the softening real-estate market. Colorado real-estate prices haven’t risen as much as in many states during the past six years, which could spare the state from the worst of a housing slump.
Other stock indexes haven’t rebounded as strongly as the Dow has.
The Standard & Poor’s 500 remains 12 percent below its high of early 2000. The Nasdaq composite index, which surged during the technology boom of the late 1990s, stands well below half of its record high in early 2000.
One reason the Dow has done so well since July is that banking, finance and consumer companies are well-represented while energy and commodity companies aren’t, said Coxhead.
With oil prices declining and interest rates stable, investors have turned away from energy companies and toward financial-services and consumer-oriented stocks, he said.
Staff writer Greg Griffin can be reached at 303-954-1241 or ggriffin@denverpost.com.
