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...past seven years, the 1000 mark on the Dow Jones industrial average has become a kind of mystical barrier in the minds of investors. The market's most closely watched barometer began flirting with 1000 as early as January 1966, but it always fell back without closing above that figure-to the chagrin of Wall Streeters who hoped that a widely ballyhooed breakthrough would give a big boost to public confidence in the market and usher in a new era of prosperity for the securities business. Last week, however, the Dow finally crashed through. On Tuesday it closed...
...Dow's breakthrough above 1000, says Economist J. Kenneth Galbraith, "will encourage the susceptible, but mostly it was useful to people who needed an excuse to get drunk." Nobel Prizewinner Paul Samuelson views the feat as "a belated recognition of what has been happening to the rate of growth of the economy." The main question, he believes, is why the index took so long to break...
...answer is that the Dow Jones industrials present a somewhat distorted view of the market. The average is composed of only 30 stocks, and though they do represent about one-fourth of the value of all shares traded on the New York Stock Exchange, they are mostly rather staid blue chips. Partly because the Dow does not include faster-moving computer, electronic, photography and drug issues, it has been late in mirroring the market's true strength. More representative, broadly based market gauges like the New York Exchange reached record highs earlier...
Investors searching for hints about the market's future also rely on a P/E statistic: the composite ratio of the 30 blue-chip stocks in the Dow Jones industrial average. Since the 1930s this figure has gone below 10 only during severe bear markets, and above 20 only in overexuberant bull markets. Its post-Depression peak was 24.2 in September 1961, shortly before a disastrous market break. It declined from 18 or 19 for several years in the early and mid-1960s to 15.7 a year ago and has increased only to 16.7 now. This is on the low side...
...tentative settlement between Washington and Hanoi comes unstuck -and it could-the market would get a nasty shock. It also remains to be seen whether investors can surmount the roadblock psychology that in the past has often caused them to start selling shares whenever the Dow Jones average gets close to 1000, a mark above which it has never closed. That attitude smacks more of mysticism than analysis; stock prices would be very little higher in relation to business profits and the strength of the economy at 1000 on the Dow than they are at 984. For what...