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Dow Pushes Past 11,000 Mark as Investors' Optimism Rises

Other indexes, which many analysts view as more accurate gauges, also hit four-year highs.

January 10, 2006|Walter Hamilton and Kathy M. Kristof | Times Staff Writers

NEW YORK — The Dow Jones industrial average closed above 11,000 for the first time in more than four years Monday, as stocks continued an impressive new-year surge that has fueled optimism about their prospects in 2006.

A late-day rally carried the 30-stock index above the psychologically important number. That helped Wall Street cement gains for the first five sessions of the year -- a bullish sign historically.

The blue-chip index rose 52.59 points, or 0.5%, to 11,011.90 amid a broad-based market rally.

An 8% surge in shares of General Motors Corp. -- the Dow's weakest performer last year -- propelled the index, as did enthusiasm about the outlook for the global economy and expectations that the Federal Reserve was nearly done tightening credit.

Although many analysts no longer consider the Dow to be the best barometer for Wall Street, it remains the most popular benchmark.

"It's only 30 stocks, but it's the one number that most investors look at," said Edward O'Hara, a financial planner from Silver Spring, Md. "They feel it's an indication of the overall market."

The broader Standard & Poor's 500 index and the technology-dominated Nasdaq composite index also hit their highest points in more than four years Monday, giving investors added confidence.

"What it shows me is that the economy is heading in the right direction, regardless of what the naysayers say," said Brett Olbrys, 33, a Connecticut-based salesman for General Electric Co.

The Dow last closed above 11,000 on June 7, 2001. Later that year, stocks were battered by the Sept. 11 terrorist attacks and lost ground for months, with the Dow falling to 7,286.27 on Oct. 9, 2002.

The Dow remains well below its all-time high of 11,722.98 reached Jan. 14, 2000, as the tech-fueled stock market boom of the late 1990s was coming to an end. The S&P 500 and Nasdaq also are well short of their peaks.

Even so, Wall Street pros say cracking the 11,000 barrier is important to the mind-set of investors, who have been shifting more of their money to shares of small and mid-size companies, as well as to foreign stocks. It's partly because of this trend that many analysts have looked beyond the Dow for a measure of the market's performance.

The Dow, for example, ended 2005 with a 0.6% loss on the year. The average stock traded on the New York Stock Exchange, and the average U.S. stock mutual fund, gained 7%.

"I do feel a lot more comfortable with the Dow going up," said Natalie Timm, an investor in Sebastopol, Calif. "It makes me think that the economy is stronger than it would appear."

Analysts noted that smaller stocks again outperformed the Dow on Monday, with an S&P index of small companies gaining more than 1% -- double the Dow's percentage gain on the day. The Dow was partly boosted by the sharp gain in GM shares, which came after analysts at Goldman, Sachs & Co. said a bankruptcy filing by the automaker was "very unlikely."

Robert Bissell, president of Wells Capital Management in Los Angeles, said Wall Street shouldn't get too excited about crossing 11,000, noting that the index had been there before.

"If I jumped up and down in the business world and said, 'Whoopee, I'm where I was five or six years ago,' people would look at me as if I were nuts," Bissell said.

Liz Ann Sonders, chief investment strategist at Charles Schwab & Co., also sounded a cautionary note. Sonders believes that the stock market overall will post a 10% gain this year, but she said crossing 11,000 by itself was not a sign to "back up the truck and load up" on the kinds of big stocks that make up the Dow.

Anthony Trujillo, a retired engineer from Tustin, said he had no plans to change his "buy-and-hold" investment strategy as a result of the Dow's performance Monday. He likens the index to a thermometer that tells him what he already knows -- stocks will continue to rise as the economy grows.

"My philosophy is to buy cheap and sell high," he said. "I usually try to buy a little bit every month."

Many on Wall Street were buzzing about another benchmark Monday -- the fact that the market posted five straight gains in the first five trading days of the year.

Since 1950, the S&P 500 has risen in each of the first five days 35 times, according to the Stock Trader's Almanac. The S&P has finished higher in 30 of those years, or 86% of the time.

The record is far spottier, however, in midterm election years like this one. In the last 14 such years, the direction in the market in the first five days has set its course only six times.

Despite that mixed record, many investors are optimistic for a strong 2006. The market got off to a roaring start on the year Jan. 3 with the release of the minutes of the last Fed meeting Dec. 13, which suggested that the campaign of interest rate hikes was nearing an end.

A leveling-off of interest rates could underpin consumer and business spending in 2006, helping ensure a strong economy.

Last week alone, the Dow soared 241 points, or 2.3%. The S&P 500 gained 3% and the Nasdaq rose 4.6%.

"I was joking and said if we had annualized last week's performance, we'll have a 335% year," said Mark Wilson, a financial planner at Tarbox Group in Newport Beach, who made that whimsical calculation while tracking the S&P's performance Thursday. "That gives some people some confidence."

Hamilton reported from New York and Kristof from Los Angeles.

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