NEW YORK (Reuters,Tue Oct 3, 2006 5:23pm ET) - It took the Dow Jones industrials nearly seven years to top its last record on Tuesday, but in the eyes of some the new record is "just a number" because slowing economic growth will make future gains even harder to come by.
The 110-year-old Dow rose to 11,758.95, surpassing the intraday record of 11,750.28 set on January 14, 2000, as investors bet on Tuesday that sliding crude oil prices will underpin corporate profits even as economic growth slows.
"It's just a number. It doesn't have the same stocks that it did when it last reached the high and it's not inflation-adjusted," said Bob Millen, a portfolio manager with Jensen Investment Management in Portland, Oregon.
In 2000, investors thought the sky was the limit given that that Dow had shot from 9,000 in 1998, to 11,000 in 1999, before topping out at 11,750 less than a year later. But now many view economic growth as slowing, lessening prospects for corporate profits.
"We have a lot of things that we're looking at, a slowing economy, a collapsing housing market. It's not like we've broken to new highs and it's off to the races. We've clawed our way back to where we were in 2000 and now we've got to climb a wall of worry to get any higher from here," said Shawn Campbell, a principal with Campbell Asset Management in Chicago.
As the Dow made a new high, the Nasdaq traded at 2246, less than half of its 5,132 all-time high set March 2000 while the S&P, at 1336, is 14 percent below its record of 1,552 also set that March.
"I would feel better if the S&P 500 was hitting a new intraday high," said Scott Wren, a senior equity strategist at A.G. Edwards & Sons Inc. in St. Louis. "As far as the market goes ... (the Dow is) a pretty narrow gauge of the stock market, and you don't have super broad participation leading up to the new high."
But it was less exciting for overseas investors.
The average of 30 U.S. stocks -- all of which trade in dollars, naturally -- is up about 9 percent in 2006. But for the euro-zone investor who must first convert to dollars to buy U.S. equities, or a broad market measure like an index or average, the return on the Dow is a scant 1.9 percent.
And even U.S. dollar investors should not be so ecstatic about the Dow average's recent gyrations. Inflation and surging commodities prices have reduced the value of the greenback in real terms, notes Peter Schiff, president of Darien, Connecticut-based Euro Pacific Capital.
That means the Dow average would need to pass 13,700 to get to real record territory, according to Schiff.
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