NEW YORK — What if the market goes up?
What if it goes down?
As the end of the 1900s neared and the unprecedented bull market kept chugging ahead, that "buy on anything" philosophy had become so firmly ingrained among stock market investors that almost any economic event had started to look like an opportunity.
Even a couple of sharp market downturns in the summers of 1997 and 1998 failed to turn the throttle down for long. Investors who ignored the doomsayers and bought in after each plunge were rewarded handsomely for their faith.
As a result, once unthinkable barriers were hurdled.
While it took more than 14 years--from November 1972 to January 1987--for the Dow Jones industrial average to rise from 1,000 to 2,000, the next doubling, to 4,000, took only eight years, to February 1995.
After that, the milestones started flying past like Burma Shave signs along a highway: Dow 5,000, 6,000, 7,000, and in July 1997, Dow 8,000--marking yet another doubling in less than 2 1/2 years.
But an even rounder number loomed: Dow 10,000.
As the five-digit threshold approached in early 1999, the stock market and the U.S. economy had become more closely linked than ever. What economists called the "wealth effect"--people's tendency to spend more freely as their investment portfolios grew fatter--was helping to buoy consumer spending, which in turn had become the main engine of the economy.
Three times in March, the Dow briefly rose above 10,000 in midday trading, only to fall back.
Finally, on March 29, 1999, propelled by a 184-point rally, the Dow closed above 10,000.
On the floor of the New York Stock Exchange at the closing bell, New York Mayor Rudolph Giuliani and NYSE Chairman Richard Grasso tossed "Dow 10,000" baseball caps into the throng of cheering traders.
The milestone signified "a golden age for investors," said Alan Skrainka, a market analyst for Edward Jones & Co.
"This is going to impact my generation just like the Depression and the stock market crash affected my father's generation," added Skrainka, 37. "My father saw a world where people were waiting to see the next big market crash, while my generation was raised on the idea of long-term equity investing."
Not everyone was so sanguine. The more records the market broke, the more certain some critics became that stocks were overvalued by all historical norms and that a day of reckoning was coming.
Money manager William Fleckenstein, a vocal dissenter from the bullish camp, warned that the market in 1999 was "just like in 1929--only much more dangerous because it's so much bigger."
Such doubts aside, the faith in an ever-rising market was so great that Congress for the first time began considering investing a portion of Social Security funds in stocks. Some saw it as a cure for the huge funding problem posed by the retirement of the baby boomers early in the next century.
Over many decades, the compounded annual return of the Standard & Poor's 500-stock index--a broader market barometer than the Dow--has averaged about 10%.
But during the four years it took the Dow to zoom from 4,000 to 10,000, the annual return was an astonishing 28%. Little wonder that stock market newcomers could start to regard 12% to 15% returns as meager.
Little wonder, too, that a dramatic shift had taken place in U.S. stock ownership. No longer was the market the nearly exclusive province of affluent older Americans.
By early 1999, nearly 50% of American families owned stocks, many through work-related pension or retirement accounts. Moreover, just under half of stock investors were women, and 55% were under the age of 50.
Stories abounded of plain folks doubling and tripling their money in a day by trading in initial public stock offerings of hot Internet-oriented companies.
The democratization of the market and the instant success enjoyed by many new players had an important effect: It emboldened investors to believe that they could do just fine on their own, without the advice--and pricey commissions--of the big Wall Street brokerages.
A flock of online discount brokerages with names like Ameritrade and E-Trade sprang up to cater to this impulse. Spending heavily on TV advertising, much of it with an explicitly anti-Wall Street theme, these firms began luring so many customers that by 1999, more than one-third of all trading on the technology-oriented Nasdaq stock market was being done online.
At last, even the biggest of the established Wall Street brokerages gave in to the pressure: Merrill Lynch announced in mid-1999 that it would open an Internet-based brokerage.