Last modified: Tuesday, December 9, 2003
IU stock market expert shares views about Dow Jones hitting 10,000
EDITORS: The Dow Jones Industrial Average today (Dec. 9) briefly exceeded the 10,000 level for the first time in 18 months. Here are some comments from Robert Klemkosky, the Fred T. Greene Professor of Finance in Indiana University's Kelley School of Business. Klemkosky also is director of IU's MBA Investment Management Academy, a program that prepares second-year MBA students for careers on Wall Street. Under his direction, the students manage a stock portfolio that is valued at more than $450,000. Klemkosky is listed as a contact on this release and is available this afternoon for interviews.
"This is quite an achievement considering the Dow was at 7,524 last March. It has appreciated about 32 percent since then, which qualifies this market as a bull market.
"Is this a significant event if the Dow reaches the 10,000 level again? It's more psychological than anything," Klemkosky said. "But not as psychological as the first time it happened in April 1999. I still have my hat that says Dow 10,000 on it. Eventually the Dow reached 11,722 in January 2000 and declined to a low of 7,282 in October 2000, a decline of 38 percent, but not nearly as bad as the NASDAQ or S&P 500. And the Dow was at the 10,000 level as recently as March 2002. So I think the impact of the 10,000 level has diminished somewhat compared to the first time."
Klemkosky dismissed the significance of the Dow milestone: "As mentioned, Dow 10,000 is a psychological level but there are more important technical levels in the market. In addition, the Dow Jones Industrial Average is not the stock market index the professionals use. That would be the S&P 500 or the Russell indices. The Dow is popular because it was started by The Wall Street Journal in 1896 and has a long history. It is comprised of 30 stocks, mostly leaders in their respective industries, but the stock market value of these 30 companies is around $3 trillion, less than 30 percent of the value of all U.S. stocks. So it is not a broad index. But if you ask any broker how the market is doing, you will undoubtedly get the Dow Jones quote.
"If you have invested in the markets for several decades as I have, you remember Dow 1,000 and 2,000, which were bigger events than Dow 10,000. But when the Dow crosses that level again, it makes headlines again and makes investors feel good, assuming their portfolios are comprised of the same type of blue chip stocks as the Dow," he said. "In reality, this is not history, but history repeating itself from 18-20 months ago. Investors have short memories. There are more important events to think about than the Dow 10,000, such as the weakening dollar, deficits and the mutual fund scandals, to mention a few."
