Everyone is celebrating the
Dow Jones Industrials' forayover the 10,000 level. Yet
while skeptics can point out that all it does is get us back
to a level we first passed 10 years ago, focusing on just the
raw number misses some crucial details. The Dow's return to
the five-figure mark reveals some of the fundamental market
changes we've seen since the bear market was in full force
this time last year.
Nothing's changed?
The Dow passed 10,000 in the opposite direction last
October, on its way down to its eventual March low around
6,500. However, don't let that trick you into thinking that
nothing has changed in the past year. Although the Dow's
value is the same as it was then, its individual components
show just how dynamic the average has been since the last
time the Dow closed above 10,000:
IBM and
3M (NYSE: MMM), are also among the
highest-priced Dow stocks. That has made their gains more
significant, because of the way the Dow is calculated.
Meanwhile, some of the
stocks that held up the bestduring 2008's bear market,
such as
Wal-Mart Stores (NYSE: WMT) and
McDonald's , have found themselves on the
losing end this time around.
Although investors have focused on prospects for broad
industries during the bear market, you'll find winners and
losers within each industry. For instance, among
financial stocks,
JPMorgan Chase (NYSE: JPM) has held its own
fairly well in the past year, while
Bank of America (NYSE: BAC) has continued
to struggle back toward its October 2008 levels, despite a
nice bounce since March.
The differences are much more pronounced if you go back to
the first time the Dow passed 10,000.
Caterpillar (NYSE: CAT) has more than
tripled, while
Pfizer (NYSE: PFE) and
Merck (NYSE: MRK) have both lost 40% or more
of their value.
All of that is really just trivia, though. The lesson is
that market indexes are made up of individual stocks, and
while they may often move in tandem, the
best companieswill eventually prove their superiority
with great stock performance.
We're still down
From a big-picture perspective, passing through Dow
10,000 once more is just another sign of just how far we have
to go before recovering all of our losses during the bear
market. Even though the measure is up more than 50% since
March, it hasn't even earned back half its losses from its
record high above 14,200 just two years ago.
Those levels reflect in large part the great uncertainty
that most investors have about the future. We've seen huge
gains as the immediate prospect of
financial Armageddongave way to signs of hope and
recovery. We've seen economic data that at least suggests the
possibility that things will stop getting worse soon, and at
best could indicate a true turnaround.
Yet those gains have come at a price. The government has
taken
unprecedented measuresto stimulate economic growth.
Leaving aside the issue of whether those actions have worked,
the bigger question is what will happen when the government
decides to stop providing that support. If the economy
becomes too dependent on extraordinary programs, then the
true day of reckoning may well be yet to come.
Don't panic
As far as your own personal investing goes, you can
safely ignore all the hullabaloo about Dow 10,000. If you've
stuck with your
long-term investing strategy, then you've hopefully been
buying stocks steadily throughout the downturn and the
ensuing rally and are sitting on some profits for the first
time in a while.
Whether the economy recovers fully in 2010 or takes longer
to work out its problems is only important if you expect to
cash out in the next year or two. If you have a long time
horizon, you'll want to pay more attention to the lasting
long-term impact than recent changes may have on the economy,
and invest accordingly.
This article was originally published as
Why Dow 10,000 Is Completely Meaninglesson
Fool.com
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