Break out the party hats, this past Wednesday the Dow Jones Industrial Average closed above the psychologically important 10,000 mark for the first time since closing at 10,325 on October 3rd, 2008, finishing at 10,015.86, buoyed by positive earnings reports from tech-giant Intel and JP Morgan. Like the proverbially roadrunner, stocks have moved more than fifty percent off their bottoms set in early March 2009, but like that gerbil running frantically along the wheel in a cage (sorry for the analogies), they have gone nowhere for more than a decade.
For others like us who have been in this industry for over a quarter of a century, it is important to put this milestone into context of what has transpired over the past six months, over the past year and indeed over the past decade. That, and to answer the question, what does this move in the Dow along with the other more important, broader indices mean for investors, and where do we go from here is the intention of this column.
First and foremost, the Dow first closed above 10,000 back on March 29, 1999, closing at 10,006. Peter Boockvar, equity strategist at Miller Tabak, did some research and discovered that back on this date gasoline was $1.20 per gallon and gold was $280 per ounce as compared to $2.50 per gallon and $1,060 per ounce today. Furthermore, the total U.S. debt back in March 1999 was $24.6 trillion as compared to the total today of $50.8 trillion while the U.S. population was approximately 272,690,000 back then as compared to 304,000,000 now.
Has it been ten and one-half years of little or no movement in this closely watched index? Of course not. If you’ll put on your memory caps, , as the fourth quarter of 1999 came to a close, academicians and computer geeks were all worried about what would happen to computers when the calendar turned to 2000. This “Y2K” issue was supposed to cause computers to crash and bank accounts to appear empty. This did not happen. However, what did happen was an historic doubling in the tech-heavy NASDAQ Composite in less than a year, beginning March 29, 1999 that eventually culminated in a subsequent eighty percent collapse in the index, a collapse now known as the “pricking of the dot-com bubble.”
The Dow, comprised of a cross-section of U.S. Industry fared much better during this collapse, but could not overcome one of the darkest days in our nation’s history, September 11, 2001. The Dow closed at 10,033 on September 5, 2001 and three days later at 9,606 on Friday, September 7. The attacks occurred and miraculously the New York Stock Exchange was shut down for just five trading days before reopening on September 17th. The attacks as well as the fact that American economy was mired in a recession, was too much for stocks to overcome. This combination, along with illegalities surrounding Worldcom and Enron pushed the Dow down to a then low of 7,286 one year later.
Despite the wars in Iraq and Afghanistan, the Dow began to push its way higher, closing back above the 10,000 mark on December 11, 2003, its first time above this benchmark in over 1½ years. From that point on, the Dow climbed higher, peaking ultimately at a record 14,164.53 on October 9, 2007. However, the economy once again entered a recession and this time, it was brutal. As a result of shoddy verification procedures as well as complicated mortgage-backed securities, Housing Prices collapsed and foreclosures mounted. Too add insult to injury, unemployment which once stood at under five percent within the past three years, is now approaching ten percent.
Since that top back in early October 2007, the Dow fell 53.78% to 6,547.05 on March 9, 2009. However, from then it has vaulted nearly fifty-three percent to where it closed Wednesday, 10,015. We noted above, that the last time the Dow closed above 10,000 was back on October 3, 2008. It is important to note that one day later, the Dow closed at 9,955 some 3.6% lower than the previous day. The downward spiral had intensified and fear of a collapse in our financial system reigned. Finally, investor panicked and then buyers stepped in.
THE BOTTOM LINE – Investors are convinced that despite the fact that we experienced a deep recession, it is indeed coming to an end and we a depression was averted. This cross back over 10,000 feels good because it is on the way up and not the way down. The economy, at least for the next two to three quarters should be experiencing an upturn and that bodes well for stocks. We believe that given this scenario, we would add to positions in your mutual funds or individual holdings on pullbacks.