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Advisers say Dow 13,000 is just a milestone

David Elias never doubted that the Dow Jones industrial average one day would top 13,000, as it did for the first time on Wednesday.

Elias, the president of Strategic Advisor, an Amherst money management firm and the author of a 1999 book that he titled "Dow 40,000," just thought it might happen a little sooner.

Still, with the Dow shooting past the 13,000 mark Wednesday with a 136 point gain to close at 13,089.89, Elias said the closely followed index's push to new heights is a good sign for investors.

"It's a sign that the economic activity worldwide is much stronger than the media is portraying it," Elias said.

Yet he also warned investors not to read too much into it. "It really means nothing other than it's a new milestone," he said.

After all, it was just a little more than seven years ago that the Dow and the other major market benchmarks were quickly passing benchmark after benchmark as the technology stock bubble grew and grew, only to burst in early 2000 and send the Dow on a 33-month plunge that knocked 38 percent off the index.

It took more than 6 1/2 years for the Dow to recover those losses and the index needed 7 1/2 years to go from 11,000 to 12,000 -- a milestone it hit on last Oct. 18. It took just 129 trading days for the Dow to go from 12,000 to 13,000.

"Probably the most important message in passing a milestone like this is to think back a few years and remember how far away 13,000 seemed" when the Dow was bottoming out at 7,286 in October 2002, said Gerald T. Cole, the managing partner at Arbor Capital Management, an Amherst money management firm.

Further chastening investors is the knowledge that the Dow is the only one of the three major market indexes that has topped its 2000 highs. The Standard & Poor's 500 index, despite a 5 percent gain so far this year that has pushed it to its highest point since September 2000, still is 32 points shy of the closing peak of 1,527.46 it set in March 2000. And the Nasdaq composite index, at 2,547.89, still is almost 50 percent below the record high of 5,048.62 set in March 2000.

Cole and other local investment advisers said the stock market has been quite resilient in its long climb back into record territory. Steadily rising interest rates and a sputtering housing market haven't derailed the market. Neither have soaring energy prices that have pushed crude oil above $70 a barrel at times and left gasoline at just under $3 a gallon. Yet all of those developments -- along with political turmoil -- still could throw the stock market into flux in the future, they warned.

Adding fuel to the market's rally recently has been surprisingly strong earnings during the first quarter. While the pace of earnings growth has slowed, the slowdown hasn't been nearly as steep as analysts were expecting. The big companies that make up the major indexes also get a significant portion of their business and their profits from operations overseas, and those many of those international economies have been growing faster than the United States, Elias said.

So far, more than two-thirds of the companies in the Standard & Poor's 500 index have reported better-than-expected first-quarter earnings, prompting analysts to bump up their forecasts for first-quarter earnings growth to 6.2 percent from the 3.1 percent they were expecting a week ago, according to Bloomberg News. Still, that's weaker than the three years of double-digit profit growth that investors had enjoyed heading into 2007.

"These earnings are wonderful," said Peter Aleksandrowicz, a Hamburg financial planner who says he views the market with "cautious optimism."

"It's a well-paced advance and it's set at some reasonable valuations," Aleksandrowicz said. "This is a lot more solid" than the more speculative dot-com powered rally in the late 1990s and 2000.

Indeed, as profits have increased, the 30 stocks that make up the Dow average currently are trading at less pricey levels, compared with their underlying earnings. The Dow stocks now trade at an average price-to-earnings ratio of 17.7, down from 22.5 when the index first topped 12,000 on Oct. 18.

Still, the Dow has a lot more catching up to do if the index will match Elias' prediction and reach the 40,000 mark by 2016. While Elias' forecast sounded outlandish when he first made it eight years ago, it actually was based on a prediction that the Dow would go up by 9 percent a year, on average, which is less than what big company stocks had averaged over the previous 73 years.

But the market's steep drop from 2000 to early 2003 has put the Dow well off the pace Elias was counting on. While the Dow finally passed the 13,000 milestone on Wednesday, it would already have topped 20,000 by now if it had been growing at a steady 9 percent annual pace that was behind Elias' Dow 40,000 prediction.


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