Dow Record Seen As Symbolic, Some Analysts Say Barometer Outmoded
NEW YORK (AP) _ The Dow Jones industrial average passed a symbolic milestone when it leaped over the 2,000 mark for the first time, but some analysts say the ″granddaddy″ of stock barometers is outmoded.
The Dow Jones average close Thursday at 2,002.25 as part of a rally that has seen a rise of more than 100 points in the first five trading sessions of 1987.
″Obviously there will be hoopla in the market for the simple reason that most round numbers carry a mystique about them,″ said Newton D. Zinder, technical analyst with the New York investment firm E.F. Hutton Group Inc.
But ″from a market standpoint, 2,000 is only one point above 1,999,″ Zinder said.
In the first hour of trading today, the market gave up some ground with the industrial average off 7.31 to 1,994.94.
Some analysts suggested that the closely watched average of 30 blue-chip industrial stocks has become an outmoded gauge of Wall Street’s health, although it still reflects the strong underlying demand for stocks that has helped drive the market with dizzying speed for more than four years.
″I really think the numbers game for the Dow is totally meaningless,″ said Robert Nurock, publisher of the Astute Investor newsletter and designer of a technical market index for the PBS-TV program ″Wall Street Week.″
″While round numbers may affect investor psychology in a short-term basis, they have little to do with long-term investing.″
The Dow Jones average still is Wall Street’s best-known indicator and is regarded as ″the granddaddy of all measurements,″ but it covers only a fraction of the enormous range of stocks sought by investors in an increasingly international market, said Theodore Halligan, a stock analyst for Piper Jaffray & Hopwood Inc. of Minneapolis.
″The Dow is an anachronism in many ways and does not reflect the strength or weakness of the marketplace,″ Halligan said. ″I think the 2,000 mark is of much greater significance to the press than the money manager or general public.″
Historically, the Dow Jones average attracted enormous investor interest as an exponent of American industrial might, particularly because the stocks making up the average represent some of the best-known companies, ranging from Exxon Corp. to General Motors Corp.
For that reason, a big rise or fall in the average was viewed as a significant indicator, especially to managers of institutional investment funds who are important buyers of quality stocks.
The average’s movement often would drag other indexes in the same direction.
But John J. Smith, analyst at the New York investment firm Fahnestock & Co., said he didn’t think the market ″responds to the things it used to before. We’re in a completely different environment now. We’re doing business all around the world.″
When the Dow Jones average was languishing below 1,000 in the late 1970s, a rise of 30 or 40 points would incite jubilation on Wall Street. But Smith said such movements have become so routine ″the institutions just don’t get excited about this anymore.″
Nevertheless, round numbers have represented psychological barriers for the Dow Jones average since Jan. 12, 1906, when it closed above the 100 mark for the first time.
Although it flirted with 1,000 for the first time in 1966, it was not until Nov. 14, 1972, that it closed above 1,000. The first time it finished above 500 was March 12, 1956.
Few market analysts pay attention to the movement of the Dow Jones average as a reason in itself to buy or sell. Many scrutinize overall supply and demand for stocks, interest rates and other economic elements.
Many also look to broader market indexes, such as Standard & Poor’s 500- stock composite index and the National Association of Securities Dealers’ over-the-counter composite index.
But now that the Dow has surpassed 2,000, the frenetic pace on Wall Street will likely continue as usual, analysts said.
″I think they might raise a few beers down at Harry’s saloon on Wall Street,″ Halligan said. ″But as they put the beer down, they’ll be looking at the strengths and weaknesses of individual stocks.″