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What Does It Mean To Have the Dow At 10,000?

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Oct 15, 2009 1:38 pm US/Mountain

What Does It Mean To Have the Dow At 10,000?

Written by Alan Gionet

Reporting
Alan Gionet
DENVER (CBS4) ― The Dow is up again. It isn't where it was though.

"Still down about 30 percent down," one woman told CBS4. Yet, many of our IRAs and 401Ks are not the empty vessels we held earlier this year.

With the Dow Industrial Average's 30 stocks climbing back to 10,000 we can feel a little better about a lot of things. First, that advice we got to hang on, made some sense. Secondly, there's hope for the American economy. A rising market generally predates economic recovery by several months, but it does show things are improving.

UC Denver finance professor Marcelle Arak put even more stock in the return of one of the market's primary indicators through history.

"It was a big round number and it signified that American business, the large companies were doing very well. This time though I think reaching ten thousand signifies something far more important. That we have avoided a Great Depression," Arak said.

The fact is, 10,000 doesn't mean what it once did. When the Dow first crossed the mark in 1999 you probably remember how great things seemed. Federal Reserve chairman Alan Greenspan had lectured us about, "irrational exuberance," but few were listening and more were wondering what company we could buy into next. (Greenspan actually made the remark late in 2006 and the markets dropped within hours, but kept jumping up by leaps and bounds soon after.) But ten thousand was worth more then. Inflation means we're actually closer to about 7500.

The worry is that the nice big round number 10,000 will be a trigger for many. Especially those of us who feel we didn't sell soon enough last year to escape the losses.

"It never was a trigger then. I mean we went way above 10 thousand before there was any recession," said Arak. True enough. The Dow busted right through 10,000 in 1999. The Dow didn't fall until the recession that followed 9/11. But then, sure enough, it started back up again in 2003 and reached a high of over 14 thousand in 2007.

Big time institutional investors don't watch the Dow as closely as you might think. They pay more attention to the S&P 500. There are 500 stocks versus the Dow's 30.

So what is the Dow at 10,000?

"It's a symbol it's a large round number," Arak said.

Arak went on to say that most people don't sell on a trigger, but stay on the train too long.

(© MMIX CBS Television Stations, Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)

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