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Dow average closes above 10,000 for first time in more than a year

Earnings from JPMorgan, Intel beat expectations and push up the blue-chip index. Broader indexes also climb to 2009 highs.

October 15, 2009|Walter Hamilton

NEW YORK — The Dow Jones industrial average barreled past the 10,000-point milestone for the first time in a year Wednesday, a testament to Wall Street's powerful rebound from the financial crisis -- but also to a lost decade that has left many people worse off than they were 10 years ago.

Robust profits at banking giant JPMorgan Chase & Co. and tech bellwether Intel Corp. drove the blue-chip index up almost 145 points to 10,015.86, underscoring the stock market's growing consensus that the punishing global recession is giving way.

The turnaround is all the more remarkable given the severity of the bear market, which sent the Dow plunging 54% from October 2007 through early March amid falling home values, a collapse in mortgage lending and the worst economic downturn since the Great Depression.

But the speed of the seven-month rally -- with stocks accelerating at their fastest pace since the 1930s -- has spurred fear that share prices have gotten ahead of the economy, which is believed to have stopped shrinking but remains weak. The worry is that stocks could fall hard again if the economy slips back into recession, something that some economists say is a possibility.

Many investment professionals, however, contend that the stock market can continue to defy the naysayers and build on its gains.

"There's still room to keep going," said Phil Roth, a market analyst at New York brokerage house Miller Tabak & Co. "You have be careful how you play the rally, but it would be a bigger mistake to fight it."

Still, the Dow's return to five-digit territory highlights the deep scars many individual investors have suffered in the last decade. It also underscores today's sharp divide between the renewed prosperity of Wall Street and the still-deep struggles of Main Street.

Powerhouse banks such as JPMorgan and Goldman Sachs Group Inc. are notching blockbuster profits thanks to speedy recoveries in their trading and finance businesses -- and are on track to pay out huge employee bonuses as a result.

Through the first nine months of the year, JPMorgan has allocated $21.8 billion for bonuses and other compensation, a 23% rise from last year. That includes $8.8 billion at its investment banking division, or almost $354,000 for each of the unit's 24,828 employees.

Goldman Sachs, which is expected to report a mammoth profit today, is on pace to shell out more than $770,000 to each of its nearly 30,000 employees.

"As the markets continue to do well and firms like JPMorgan and Goldman Sachs see these high levels of profits, you can expect that bonuses will be paid out at the levels they were prior to the financial crisis," said David Roberts, an executive-pay expert at Verus Research in Scottsdale, Ariz.

The bonuses are unlikely to sit well with the public and Congress because both firms were beneficiaries of the government's huge bailout effort. JPMorgan received $25 billion in that program, while Goldman Sachs got $10 billion. Both have since repaid the money.

JPMorgan's stock has almost tripled since March, while Goldman's has nearly quadrupled since its low in November.

Yet many Americans are still grappling with shattered home values, decimated 401(k) retirement accounts and the threat if not the reality of unemployment. The nation's employers slashed 263,000 jobs last month alone as the unemployment rate rose to a 26-year high of 9.8%.

It's not unusual for Wall Street to benefit from an expected rebound in the economy before ordinary Americans see any improvement. But this recovery could be weaker and restore jobs more slowly than in past rebounds, producing a bigger gap between economic haves and have-nots, said forecaster Allen Sinai at research firm Decision Economics.

"There's a dramatic night-and-day juxtaposition of a booming stock market and rich financial firms, and jobless Americans," he said. "Part of the prosperity we're seeing on Wall Street is because of massive job losses, which preserve profits."

That division was shown in JPMorgan's third-quarter results. The bank reported a $3.6-billion profit, even after recording a $3.8-billion expense to cover expected losses on loans to consumers struggling to pay their bills, nearly double the amount set aside in last year's third quarter.

Profits at some companies are being generated more by cost-cutting than by any fundamental changes in business conditions. For example, job cuts at Johnson & Johnson helped the drug giant report better-than-expected quarterly earnings Tuesday despite disappointing revenue.

Many individual investors have stayed put in stocks throughout the turmoil, in part because alternatives such as low-yielding bank certificates of deposit are unattractive.

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