Dow 10,000? Slam dunk. Dow 11,000? Not so much.
Filed under: Investing
Here's an oldie but a goodie: Dow 10,000.We last saw that level (on the way up, that is) six years ago, and we first crossed Dow 10,000 a full 10 years ago. (The latter fact is no doubt deeply depressing to buy-and-hold investors, but at least it has a nice symmetry to it.)
So here we are oh-so-close to regaining the psychologically significant Dow 10K, and yet in so many ways, it feels too good to be true. You needn't be a full-on bear to figure that this current rally is getting a little long in the tooth. The Dow's up 50 percent from the March bottom, the broader S&P 500 has gained nearly 60 percent since that time and the tech-heavy Nasdaq Composite has engorged itself by nearly 70 percent.
If you're a market participant who doesn't happen to be in a persistent vegetative state, you've got to be asking: How much longer can this go on?
Whether this is a massive bear-market-rally head fake or the beginning of a new bull run is a matter for psychics now and historians later. But we do know this: Even some of the more cautious and even bearish prognosticators and pundits see more short-term upside ahead, if for no other reason than the market is going up because the market wants -- nay, needs -- to go up, so that rank-and-file portfolio managers can keep their day jobs.
Fund managers, let's not forget, are held accountable to their benchmarks. Whether it's the S&P or (take a deep breath first) the MSCI U.S. Investable Market Consumer Discretionary Index (MSCICD), you've got to match or outperform your benchmark. After all, why would an investor pay extra fees for active management if his portfolio wrangler can't beat a low-cost index fund? That helps fuel momentum investing, where managers chase returns, buying high and selling higher, in order not to be left behind.
No, it's not an ideal investing situation, but it does bode well for further near-term gains. As Jeffrey Saut, chief investment strategist at Raymond James, told clients last week: "With many money management firms approaching their October year end, the performance pressure, subsequent bonus pressure, and ultimately career risk, continues to increase geometrically as the equity markets rally."
In other words, buy and buy some more -- or no bonus for you.
The good news is that this state of affairs could continue right up until the end of December, says Keith Hembre, chief economist at U.S. Bancorp's (USB) FAF Advisors in Minneapolis. "Our view is that you probably have a fair number of managers trailing their benchmarks, chasing returns," says Hembre. "And that will probably continue to year-end so they can have window dressing on their numbers."
Also supporting the argument for further shorter term gains is the fact that September -- ordinarily the cruelest month for equities -- has thus far been so strong, says Brett D'Arcy, director of investment and research at CBIZ Financial Solutions (CBZ).
"[This month's] performance is going to provide a lot of momentum," D'Arcy says by way of email. "To have the historically worst month be this good is going to get a lot of attention from the 'fence sitting' cash holders."
If that does indeed come to pass, we could be in for quite another momentum move up. According to Wood Asset Management, there's still enough money sitting on the sidelines to buy out the entire S&P 500.
The tough decision investors face is whether to book gains now -- and risk missing out on additional upside; or stay fully invested -- and risk losing hard-won paper gains in a pullback, correction or rout. Let's not forget that the economy is looking to have a pretty tepid recovery and there's still "way too much risk" in the equity markets, according to the presciently bearish David Rosenberg.
"Rosie," who left Merrill Lynch after the Bank of America (BAC) deal to become chief economist at Gluskin Sheff, told clients Friday that never before has the S&P 500 rallied 60 percent from a low in such a short time frame. Furthermore, the market has never rallied 60 percent at the same time the economy lost 2.5 million jobs.
"What is normal is that we see more than 2 million jobs being created during a rally as large as this," Rosie wrote. He believes the buying that's driving the market higher is most likely a combination of program trading, short covering and "portfolio managers desperately trying to make up for last years losses."
So what's a poor, lone retail investor to do?
Get a grip on those stop-loss orders and roll, roll, roll them up by the same percentage that your investments have jumped. If you bought a stock at, say, $50 with a stop-loss of $45, and now those shares have doubled to $100, make sure you double that stop-loss up to $90, too.
True, you could get stopped out of a position, but this will force you to sell higher and avoid getting killed if some unforeseen news or data snuffs out the current momentum run. It just might make you sleep better at night, too.
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Reader Comments (Page 1 of 4)
9-21-2009 @ 7:59AM
Joe said...
Next, the IMF becomes the international banking regulator. The UN becomes the world government. Obama signs the Law of the Sea Treaty. We lose our sovereignty. No more borders. The NAU.
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9-21-2009 @ 11:38AM
Doug said...
Actually I suspect the upward move in stocks reflects more than anything the downward move in the value of the dollar with respect to other currencies. When the dollar is loosing value anything that has intrinsic value will become more valuable in terms of dollars, this is reflected in the upward move in the price of stocks as well as gold, copper, aluminum, and a host of other commodities. So long as the dollar continues to loose value the dollar price of anything has has value will continue to increase.
9-21-2009 @ 8:24AM
Joe Roy said...
The DOW will take a crap as soon as the moron's find some lame excuse to move Oil prices back up. After months of low demand speculators still find some way to twist the numbers to drive up prices. Oil should be at $20.00 to $30.00 range. The economy will not recover until Oil is down!
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9-21-2009 @ 8:44AM
Dan said...
The market will continue to rally. There will be a pullback but it won't be huge and it won't come till after the 10th of October. There will be many gains in the meantime. But the trick is those gains only go to the ones who are willing to jump in. If you stay on the sidelines you really lose. And big. We are going to hit the 10000 mark. When we do you had already be in there ready to ride the market up or watch everyone else make a killing. The Fed will hold the rates steady and right now inflation is not to much of a worry. It wasn't that long ago they were talking deflation and that did not happen. The Dow at 10000 is just a number but it will be a sign that we are really emerging from a recession and that is really why we need the Dow to hit that number.
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9-21-2009 @ 8:46AM
Paul said...
10,000, and that is where it Will Collapse starting at the end of this month. A fall of 40 percent or more by December. We are presently in the Eye of the Hurricane and soon we will be hit by the Second half which might actually be worse than the first half . the Main reason the Market has been up is the Government has been funneling Masses Amount of you Your Money into Dead Markets which are still Dead and will stay dead. There are No Profits for these Markets, Only Government Props designed to Lure the Unsuspecting. Do Not fall for it. As fast as Private Investors pull Out, The Government Puts in. This Cannot last. The word is the Gov will be pulling out its stake starting in October to pay for their other projects and the Markets Will collapse. Remember, be out by end of September
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9-21-2009 @ 11:27AM
Bill said...
You are sooooo right brother!!! Those crooks are just luring you in with all the happy talk. Once they have your cash in, they will be running for the hills!! ( with your $ ).
American Industry might as well be "cardboard" store fronts. They look so nice when you drive past them, but watch out, they are HOLLOW EMPTY BOXES!! Nothing left any more to American Industry. It's a con game now. This country is in BIG trouble. Any "good news" is all smoke and mirrors!!.
100 TRILLION in debt, 20 million people out of work, banks dropping like flies because of toxic "assets", etc. Hold on to you hats folks, we are about to go over the cliff!!!
9-21-2009 @ 4:43PM
Gordy said...
Agree! They are suckering us into investing and driving up THEIR stocks so THEY can dump them. Same results as Madoff's but legal. Get out NOW!
9-21-2009 @ 8:53AM
Loyd said...
I am waiting on the other foot to fall. The commercial real estate paper is about to take a major hit. Nothing has been done to help by the current administration that people could call "good". I would just as soon they keep the government out of the picture.
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9-21-2009 @ 9:24AM
jim said...
Considering the dow was at 13 when Obama took office..I see no reason to jump for joy.. Peoples 401k got destroyed by Obama and his cronie of merry thieves..
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9-21-2009 @ 11:11AM
James said...
Hey Jim, the Dow was at around 8000 on Jan 20, 2009 when Obama took office.
9-21-2009 @ 1:52PM
Sally said...
Why do you lie when it is so easy to check and point out the DOW was at 8000 when Obama took office? When it was at 13,000 Bush was president and it was all one big ponzi scheme. Now it is more realistic.
9-21-2009 @ 5:57PM
drew said...
republicans only lie that is all they have left
9-21-2009 @ 9:14PM
davidrep said...
Hey Jim,
Stop pulling s**t out of your a** and check your facts you lying racist republican bastard!!! The dow was at 8000 when Obama took over. And do you know why he took over?? Because Bush and his cronies robbed us blind for eight years and we all began to lose our jobs during your hero's two terms. You're an idiot!!! Stop listening to Beck for God's sake and open your eyes!!!!
9-21-2009 @ 9:31AM
jeff said...
Daily Finance should change their name to Daily BS! The Dow will hit 10,000 make a correction or two and then continue to 10,500!! To show how much AOL know about stocks right now they have the DOW future down 60 while the S&P up almost 40 does that sound possible??? Truth is most long term investors are buying every payday so they also were buying when the DOW was at 7000 recently and the smart ones keep a balance between stock funds and a fixed account so right now I'm up from 2 years ago since I rebalanced and sold when the market was high 13,500 and had a 40% stock balance at that time and bought as the market came down until I reached 70% in stocks now I am slowly balancing back to 55% stocks as the DOW slowly climbs over 10,000 adjusts and then moves up until the BIG BANKS and their pyramid schemes crash it in 3 or 4 years to start this cycle over again!! IF OBAMA would really reform the market by getting rid of the BIG BANK run FED and HEDGE FUNDS then the market would slowly rise and have less huge drops but he is a bank boy so do not ecpect him to do the right thing including getting rid of energy futures!! Geithner his FED boy will work with his bank buddies to make BAMA look good but then if he gets another term expect some real pyramid scams to FLY from Goldman SACS and JP MORGAN again!!
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9-21-2009 @ 10:48AM
lpi2007 said...
WHAT THE HELL DOES THE DOW MEAN? It's nothing more than when our Government finds a way to screw you. BUT KY JELLY, WE ARE ALL GOING TO GET THE SCREWING OF OUR LIVES... WATCH AND SEE
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9-21-2009 @ 11:07AM
Rick said...
It will take another generation for the Dow to ever find 10,000 again but not this one. Look for the Dow to hit 2000 or lower by the year 2011 along with a national official unemployment rate that will put that of the 1930's to shame. But the greatest concern at the moment should be the spectre of a massive currency devaluation.
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9-21-2009 @ 11:16AM
Sponge Bob said...
DUDE, WHAT EVER YOU ARE SMOKIN, SEND ME SOME!! YOU ARE ON SOME SERIOUS HALUCIGENIC DRUGS!! THIS ECONOMY IS GOING TO CRASH RIGHT BACK IN ON ITSELF, GUARANTEED!! YOU IDIOTS OUT THERE SAYING THE RECESSION IS OVER ARE STONED OUT OF YOUR MINDS, BANKS ARE STILL FAILING, BANKRUPTCIES AND FORECLOSURES ARE AT AN ALL TIME HIGH AND NO ONE IS DOING A DAMN THING ABOUT IT, EXCEPT SITTING AROUND GETTING STONED LIKE YOU ARE!!!
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9-21-2009 @ 11:24AM
skipperrc said...
the stock market is not a barometer of our economy. what id the consumer index? people spend when times are good. what is the unemployment rate? working people have money to spend. consumers are not gamblers. they don't buy low and hope to sell high. this country will come out of it's recession? just like they did in the late thirties. when there are jobs for the unemployed. when no one is working, no one is buying, no one is producing, no one is selling. will you take your income tax refund in savings bonds? i want cash. china doesn't want any t-bonds eaither. who are we going to borrow money from for next years budget of 1.25 trillion? we'll just start up the printing presses.
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9-21-2009 @ 11:35AM
TexasKitty said...
Why get all excited about the Dow nearing 10,000? When Obama won the nomination it was 13,000 and between Obama, Fannie and Freddy, it's been downhill ever since. Let's get excited when it goes beyond 13,000.
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9-21-2009 @ 1:52PM
Sharon said...
It was at 8000 - get your facts straight. Why do you find it necessary to lie when the facts are so easily checked? The DOW was at 13,000 only when Bush was president and it was one big PONZI scheme.