Thursday, October 19, 2006

Dow Closes Above 12,000 for the First Time

Dow Closes Above 12,000 for the First Time
Published: October 19, 2006

Less than three weeks after it set its first record high in more than six years, the Dow Jones industrial average closed above the 12,000-point mark for the first time this afternoon.

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The achievement by the popular, though not comprehensive, barometer of the stock market indicates that investors are increasingly confident that the economy is poised to perform the rare feat of slowing without stalling. The Dow is up 12 percent so far this year.

The Standard & Poor’s 500-stock index, a broader measure of the market, has also done well and is up 9.5 percent for the year.

The Dow’s move above 12,000 came on modest gains for the day, with the industrial average rising 19.05 points, or 0.2 percent, to close at 12,011.73.

The day’s gains were just as modest elsewhere in the stock market. The S.&P. rose 1 point, or less than 0.1 percent, to 1,366.96, while the Nasdaq composite index rose 3.79 points, or 0.2 percent, to 2,340.94.

"It is the best of both worlds here," said Steven M. Rogé, a portfolio manager at the Rogé Partners Fund. "We have interest rates that are still below the long-term average, capital is still flowing freely and growth is strong but not excessive."

The current rally, which started in late July after an early summer swoon, has followed a well-worn pattern in which stocks do well in the last three months of midterm election years, analysts experts note. The one difference this time is that the stock market started moving up in the third quarter, which historically has proven to be a weak stretch.

"You have to back a very long way to find a negative” in a midterm election year, said Sam Stovall, chief investment strategist at Standard & Poor’s. "On average, you have a positive year 90 percent of the time."

Larger stocks, particularly in consumer staples, have done particularly well, which has helped the Dow, an index of 30 blue-chip companies.

Technology companies like Intel and Microsoft, which lagged the market earlier in the year, have also done well.

Some stock pickers, however, see that strength as a worrying signal that big company stocks may have become too expensive, at least for the time being.

More broadly, some economists and bond investors do not share the stock market’s sanguine view. Atop their list of concerns is a softening housing market and its direct and indirect effect on the American economy.

If home sales continue to fall at current rates or faster, that decline will reduce employment in construction, mortgage lending and other related areas. Also, falling prices will make it harder for consumers to refinance and tap their homes for lines of credit for home improvement and other spending.

Other concerns include tensions in the Middle East and on the Korean peninsula. Those and other geopolitical crisis could easily reverse the two-month-long slide in oil and gasoline prices.

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