For the past 48 hours people have been asking me if I thought the market would pull back after the Dow Jones Industrial Average surpassed the milestone of 10,000. Business journalist's and guru's alike have suggested that there might be some profit taking or "selling into strength" and the recent highs would not hold. As the market proved yesterday, up about a half percent across the board, with the Dow closing at 10,062.94, up 47.08 in last-minute buying -- that is just a lot of noise.
Why should this number or any number matter at all? I guess folks need something to blabber about -- and it creates fodder for me -- but these milestones are illusory. When I posted last March, Is the stock market spring loaded? Could it move 3,000 points higher now? I was thinking about the market being oversold, about companies "right sizing" for renewed profitability, and how year over year comparisons were going to get much easier.
So it happened, but 3,000 was somewhat arbitrary and I'm the first one to admit it. I picked that figure because I did believe the market would end the year somewhere between the March lows and the previous highs.
The important issue regarding the recent market highs are all about profits. Investors are simply chanting "show me the money," and that has been what we are seeing.
Wednesday JPMorgan Chase (NYSE: JPM) and Intel (NASDAQ: INTC) reported better than expected earnings; Thursday morning Goldman Sachs Group (NYSE: GS) did the same; and after the close Google (NASDAQ: GOOG) and International Business Machines (NYSE: IBM) banged the profit gong even louder.
Do these reports matter -- heck yeah! If General Electric (NYSE: GE) marches to the same drummer today, forget about 10,000 because it will not be long before all the talking heads dismiss their talk of a pull-back and start chattering about the possibility of Dow 11,000
Update: The major indices were down today by less than 1%. While the DJIA finished the day barely under 10,000 at 9,995.91, off 67.03, the S&P finished at 1,087.68. If you care about these numbers it is probably more important that the broader index remains over the 1,000 mark. As I noted it's all about earnings and GE did not excite anyone and Bank of America (NYSE: BAC) did poorly. This was also the day October options closed out.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of GE.
Twitter finally reveals revenue ambition, wants to be Google -- but not yet
Google says: Chrome for Christmas
Why is gold marching higher? Ask the central bankers
Reader Comments (Page 1 of 1)
10-16-2009 @ 2:57PM
william lindblad said...
I agree, the 10,000 mark is meaningless in itself, but so is when a century turns. It is more of a mile stone than anything else. Again, current data seems contradictory to reality as productivity is reported on the rise, this, along with 2/3 of the DOW 500 that have reported earnings beating estimates seems like an illusion. Unemployment figures in many States are now over the 10% mark and job creation is virtually nil. The only sensible explanation for solid business profit ranges from exports to lay offs to government support - direct or indirect. As I am writing this, GE has reported and their earnings were not as good as expected, but still decent. This is interesting as to the best of my knowledge GE has not engaged in lay off cost cutting nor have they required government help. If the red ink is mostly in their financial arm it would indicate that the rest of the business is doing well.
I fully expect that there will be market corrections along with lackluster earnings coming next quarter, but no bottomless pit, just flat as far as I can see. Until there is job creation there cannot be a consumer driven economy. A different venue is not the disparity gap of wealth that is currently media fodder. People are people and in the age of the robber barons this disparity created great friction. There is no reason to believe that it will not happen again.
10-16-2009 @ 6:24PM
mweill1 said...
IBM was the loss of 50 points on the Dow, nearly all the 67 points down