Dow 12,000: Still Well Short of Record High

When the Dow Jones Industrial Average reached a 30-month high of 12,000, the milestone was greeted with euphoria. But the fact that it's still well short of its all-time record seems to be missed.

On Oct. 9, 2007, the DJIA reached a peak at 14,163.53. It had traded above 12,000 for almost all of the previous year. Why was the Dow 18% above today's level, or, more to the point, why has it not come close to its 2007 peak?

The economy was in much better shape in 2007 than it is now, although it was headed for a fall. By March 2009, the Dow had tumbled to 6,626. Clearly, the market did not see the credit crisis coming a year before it hit with full force. Wall Street experts often say that stock market prices anticipate the economy a year ahead of time. If that's so, the Dow missed the mark in 2007. The index was set on the strength of the economy in 2007 and not the pending trouble.

The DJIA average today has reached a price that surely anticipates a strong rebound in U.S. employment, GDP and, perhaps, the housing market. It also must be anticipating better corporate earnings and certainly an improvement in company sales. Many of the earnings gains over the last year have had more to do with cost cuts than revenue gains.

The potential market danger to the Dow is not just that it's back at 12,000, but that it got there so quickly. It's up 85% in 22 months. The peak in 2007 was the result of a longer, slower climb. That means the 12,000 level is probably fragile and could be undermined if many of the economic expectations built into the rally don't come true.

The enemies of the market now are few but powerful. Inflation could erode American buying power, particularly if wages and corporate margins can't keep up with prices. An unemployment rate above 9% won't sustain an extended recovery -- the number is too high to allow for a sharp rebound in overall consumer spending.

And, of course, a number of events beyond America's control could topple market confidence. The debt crisis in Europe is on that list. So is the possibility that the political upheaval in the Middle East could spread, undermining sovereign debt in the region and disrupting trade.

The DJIA is well short of 14,000, and based on the risks of the year ahead, it should be.

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Dereck

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May 29 2011 at 1:35 AM Report abuse rate up rate down Reply
sfields435

duey35: Wait. Bush DIDN'T make the economy WORSE than the one he inherited? But, OBAMA did? THAT'S SOME KINDA REVISIONIST HISTORY.

February 02 2011 at 2:45 PM Report abuse +1 rate up rate down Reply
tj1108

The riots in france took our market down over 1000pts. The riots in Cairo has the market going up. Is it just me or is someone monkeying with the market.

February 02 2011 at 2:35 PM Report abuse +3 rate up rate down Reply
duey35

Sasha Obama was watching her mother put face cream on one night and asked why do you do that Mommy? Michelle replied, it helps mommy look beautiful. Oh Ok says Sasha, She keeps watching her mother, and she wipes it off with a tissue. Sasha asks, Mommy why are you giving up?

February 02 2011 at 1:50 PM Report abuse +3 rate up rate down Reply
duey35

So Bushwacker what did they do to stop it? spent moe money. Clinton left Bush a recession, did he make it worse? No. Bush left Obama a recession did he make it worse? Yes much worse.

February 02 2011 at 1:43 PM Report abuse +3 rate up rate down Reply
duey35

Pelosi Reid Obama what do they all have in common? their all morons that destroyed an economy.

February 02 2011 at 1:34 PM Report abuse +3 rate up rate down Reply
1 reply to duey35's comment
goppainintheass

Fizzzzzz---paafffft! PU

February 02 2011 at 1:35 PM Report abuse rate up rate down Reply
BUFFALO

I think the highs and lows are over played.
Does it really matter what the volume is if you are losing money?
The thing to remember is in order for there to be winners
there has to be losers and there are always far more losers!

February 02 2011 at 1:29 PM Report abuse +1 rate up rate down Reply
goppainintheass

Now----Obama has tripled our national deficit since Bush left----unemployment is very high----around the world our enemies laught at us and Obama Care is getting repealed-----why is this better?

February 02 2011 at 1:27 PM Report abuse +1 rate up rate down Reply
HiBarbRayAndMeg

Dow 14k... built on sand and greed. I will take Dow at 12k anyday if all the fundamentals are sound and it has a chance of staying there for longer than a couple months.

February 02 2011 at 1:26 PM Report abuse rate up rate down Reply
2 replies to HiBarbRayAndMeg's comment
HiBarbRayAndMeg

the FED is not a govenment entity... but keep trying.

February 02 2011 at 1:30 PM Report abuse rate up rate down Reply
goppainintheass

Why is it called FEDERAL reserve then?

February 02 2011 at 1:31 PM Report abuse +1 rate up rate down Reply
goppainintheass

Obama appeals to the morons of America----it is sad

February 02 2011 at 1:25 PM Report abuse rate up rate down Reply