Dow passes 10,000 mark but no reason to celebrate

Now the Dow has crossed back through the 10,000 barrier, lifted by surprisingly strong profits at JP Morgan, market watchers are hoping the index will continue to surge higher as Goldman Sachs, Citigroup and Bank of America report earnings today and Friday.

But amid the celebrations - the index is up 52 per cent since March - analysts say the milestone may not be as significant as it appears; they say it's foolish to judge the health of an equities market based solely on whether its total value can be measured in four or five digits.

They speak of a "wall of worry", specifically in the area of mutual fund withdrawals, high levels of bad loans, plus heavy consumer and government debt. Concerns that the economic recovery might not be able to be sustained without government support could still undermine the markets.   

After all it was only last October that the Dow came crashing through 10,000 on its way down from 14,164 in May 2007 to 6,469 in the depths of the financial crisis.

"People don't believe it, they don't trust it, they are nervous, they are anxious," Andy Brooks, head of stock trading at money-management firm T. Rowe Price, told the Wall Street Journal. "Most of us can't believe the year we have just been through."

Nor necessarily are the bank earnings that fuelled yesterday's rally all that they seem. Loan defaults are rising and worries linger about commercial property values. JP Morgan CEO Jamie Dimon acknowledged that the bank is going to lose a lot of money in credit cards next year.

Passing through 10,000 in 2009 is very different from the first time the Dow closed above the mark on March 29, 1999. Back then - before the bursting of the technology bubble and 9/11 - traders drank champagne and spoke excitedly of the index reaching 50,000.

"In 1999 when we closed above 10,000 it was like breaking the sound barrier," says Chuck Carlson, a contributing editor at Dow Theory Forecasts newsletter.

Where it is at now could be a kind of sugar high. No one is talking of the venerable (and some say irrelevant) index reaching even 15,000.

"Who knew we'd be back where we were at the turn of the century," notes one former Morgan Stanley portfolio manager. "Back then it was sky's the limit, now it's Watch Out! People don't believe it..."

Dow at 10,000 means investors have effectively made no money in stocks since 1999. In fact, the value of shares has effectively diminished millions of Americans' investment and retirement funds. "We've had no increase in the financial net worth in the US. If you discount 20 per cent for inflation then our purchasing power has actually diminished."   

After 7 million job losses and nearly 2 million home foreclosures in the US over the past year, the rise in the Dow is viewed by some conspiracy-minded Americans as a rigged game designed to restore bankers' pay to record levels.

The index has more hurdles to cross before a return to prosperity can be announced with assurance. Still, says research analyst Cleve Rueckert, "Each time it crosses one of these levels, more of the bears get flushed out. They're more apt to change their tune. It makes it that much more clear that the market is pushing higher." ·