Where Is The Ceiling? Experts Say There’s No Limit To How High The Dow Can Climb

What’s true for the World Series of Poker and American Express Platinum Card also applies to the Dow Jones industrial average. There’s no limit.

The granddaddy of stock market averages, the one recognized by most Americans, closed above 6,000 points for the first time in history on Monday, a powerful symbol of the U.S. stock market’s seemingly unbridled strength.

Professional traders on Wall Street regard the milestone as just another number. But it happened very quickly, demonstrating a mathematical trend that suggests 7,000, 10,000, 20,000 and beyond could come with even more startling speed.

“I don’t know how high it can go, and you should hang up on anyone who tries to tell you,” said Alfred E. Goldman, vice president, A.G. Edwards & Sons Inc., a St. Louis-based brokerage firm.

Put another way, from the time that Dow Jones first published a stock average in 1884, it took 88 years to close above 1,000. It took 15 years to traverse 2,000, less than four years to traverse 3,000 and 4,000 and less than one year to break 5,000, which happened Nov. 21, 1995.

Cracking each millennium mark is not the big deal it used to be, since each gain represents a smaller percentage as the market steamrolls ahead. Moreover, there is always the possibility of a pullback in the stock market or a sudden crisis that spooks investors into yanking some money out.

But many stock market traders have expressed confidence that the market’s direction is still up for the immediate future. They argue that a mix of low inflation in the American economy, and what some believe is the relative attractiveness of U.S. stocks and bonds, favor the bulls.

There are other reasons why stocks could keep ising. Baby boomers worried about their future financial security continue to pour their savings into mutual funds, which are pools of professionally managed money that heavily invest in stocks. That is a powerful force pushing up stock prices.

At the same time many American corporations are buying back shares of stock, which boosts their value and makes shareholders happy.

“The effect of reduced supply with good demand is higher price,” said market strategist Joseph Battapaglia.

Of course it’s important to remember that history also doesn’t rule out another bear market, or a prolonged period of depressed stock prices. Veteran Wall Streeters don’t forget that from 1974 until 1982 when the current rally began, the Dow average rose less than 300 points. Even the most ardent cheerleaders of the stock market hesitate to predict the future.

“All of us supposed pundits of the future are mere mortals, and the best approach is to assume that a bull market will go up forever, until it stops,” said Goldman.

MEMO: This sidebar appeared with the story: Piling Into the Stock Market Some of the numbers behind the stock market’s climb: If you had bought each of the 30 Dow industrial stocks six years ago as the bull market was getting started, you would have doubled your money by now. Including reinvested dividends, $100 invested in the Dow Industrial stocks in September of 1986 would have grown to $198.81 by this September, according to S&P Compustat. That far outpaces the market’s average annual return of about 10 percent. The Federal Reserve reports that last year the value of household stockholdings outweighed home equity for the first time in decades, reaching $5.5 trillion in stocks compared with $4.2 trillion in homes. More than one adult in three owns stock directly, through a mutual fund or through a savings plan like their employer’s 401(k), according to the New York Stock Exchange. Stock market analysts say much of the new investment has come from baby boomers, now turning 50, who are growing anxious about having enough money for retirement. Through September, Americans put more than $177 million into stock mutual funds, more than twice the rate of a year earlier, according to the Investment Company Institute.