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TwitterIt took a little over an year for Dow to turn around and head back northwards. From the dog days of March, when no one thought that this would ever happen as quickly as it has, the Dow Jones Industrial Average crossed the five figure mark for the first time since October 3, 2008. At close of trading on Wednesday the Dow was sitting pretty at 10015.8, a gain of 144.80 or 1.47% a high for 2009. What many consider as a sign of better things to come.
The standard & Poor’s index and the Nasdaq composite also closed the day at highs for the year. The S&P 500 was up 18.83 or 1.75 % to close at 1092.02. Nasdaq joined the party with a 32.34 point gain to end the day at 2172.23. A gain of 1.51 % over its previous close. The markets had hit rock bottom in March this year. All three indices had hit twelve year lows. However, the rallies since then have resulted in the Dow gaining 53 %, S&P 500 up by 61.4 % and Nasdaq rising 71.2 % against there lowest close in early March this year.
Analysts are looking ahead with hope that with the 10,000 mark being breached it would create a psychological stir for the investors who have been staying away that the economy is indeed on the path to recovery and hence, pull them back in the gain. Investor confidence is a major factor on which the Dow can survive its current rally.
Today’s gains were driven by the third quarter financial reports from Intel Corp. and JPMorgan Chase. Intel surpassed forecasts and its stock gained 34 cents to close at $20.83 before hitting a 52-week high of $21.27. Intel’s CEO Paul Otellini also predicted that the last quarter of the year will be the best of the year for them.
On the other hand, JPMorgan Chase quoted their earnings at $3.6 billion for the third quarter. Higher quarterly sales and earnings bolstered the company’s stock up 3.3 % by the closing bell. The company is facing trouble with the rising consumer loan losses. Even though there are signs of stabilization in that regard, things do not look very bright. This however did not prevent their and Goldman Sachs shares from hitting their respective 52-week highs on Wednesday.
The Dow which comprises of 30 corporations had 25 of them end the day on the green side but the final push to breach 10K certainly came from the Intel and JPMorgan Chase’s reports.
The news of the 10,000 being breached is being welcomed everywhere, there might not be a celebration but it certainly gives many a reason to breathe easy for now. Will these gains last is totally another question and many will shy away from answering it right now. The position where the market is at right now shows that it is indeed overbought and needs a correction of about 10-15 %. Back in March at the lowest point of the markets they were completely oversold. This is certainly not a very encouraging sign for many and will keep investors vary as they expect a correction soon.
If the belief that the markets follow historical trends is true, we just might be at the peak right now. Back in 1975 after crashing the markets rallied back to gain 53 percent in four months before posting eleven percent on the leeward side. The current situation does seem like a saturation point if a similar thing is going to happen now. The markets will recover and continue northwards in their quest to breach the all time high of 14,164.53 set in October 2007. How quickly? Is the million dollar question.
There is hope that with corporations starting to post improved figures for the third quarter and with the market gaining the way it is, the economy is on its way up. But analysts say that, though this might be true, the fact is that the economy trails the market by about 6 months. So with the market hitting highs now will translate into better numbers in the economy by March 2010. As it will start reflecting in falling unemployment figures and other factors like better consumer spending and an improving housing market, which would confirm that the economy is indeed getting healthier again. Assuming the same right now, would be a mistake.
Investor confidence is still low as can be seen from the fact that in August for every dollar pumped into stocks, 11 were put in bonds. Play safe seems to be in everyone’s mind. With today’s high a psychological barrier may have been broken and can act as a stimulus for investor confidence. But will the market continue the northward trip is as uncertain as a hot air balloon with no burners, it may get caught in a jet stream and go around the world or the ground isn’t too far either.
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