Fisher Investments Editorial Staff
US Economy

D10K Doubters

By, 10/16/2009
Story Highlights:

  • The Dow broke 10,000 Wednesday for the first time since October 2008.
  • Doubters worry irrational investors have pushed us too far, too fast—the steeper the recovery, the more likely we'll backslide.
  • Bullish or bearish calls solely supported by one flawed index's reading aren't worth a dime. But fear-of-heights fretting is good for stocks.
  • Too-dour sentiment matched with improved earnings will boost prices. Early reports include another quarter of healthy bank profits and some tech surprises.

(Editor's Note: Fisher Investments MarketMinder does NOT recommend individual securities; the below is simply an example of a broader theme we wish to highlight.)______________________________________________________________________________________________________

New Year's Eve is normally festive, but in 1999, Y2K concerns had some folks swapping cocktails and black tie blockbusters for bunkers and baked beans. Mankind survived the millennium, but a decade later, a new threat looms—D10K (Dow 10,000). Will it drop stocks or prove as feckless as Y2K? We'd bet on the latter. As we've said before, investors shouldn't pay attention to misleading milestones, flawed indexes, or even worse, both.

The Dow broke 10,000 Wednesday for the first time since October 2008. The gain was sustained as stocks moved ahead Thursday too. But D10K doubters worry irrational investors have pushed us too far, too fast—the steeper the recovery, the more likely we'll backslide. Recent headlines illustrate these concerns:

 

Expect Dow 10,000 to Be a Ceiling Rather Than a Floor

 

Celebrating Dow 10,000? Not So Fast

 

Don't Trust Dow 10,000

 

Bullish or bearish calls solely supported by one flawed index's reading aren't worth a dime. But fear-of-heights fretting is good for stocks. Last week, we outlined a number of bricks building the steep wall of worry stocks are climbing. Now we can add D10K to the list—another baseless fear, set up for stocks to knock down.  

But just how will stocks continue knocking ‘em down? Corporate earnings will almost certainly help. Investors get all warm inside when "against all odds" companies survive an economic onslaught. Somehow, cycle after cycle it surprises folks when lean firms find profits in a so-so economy. But it's always worked that way.

 

After quarters of cost-cutting, even slight economic improvements can slow or reverse losses. Absolute earnings may continue weak, but relative strength compared to too-dour expectations should boost stock prices. Early reports include another quarter of healthy bank profits (Goldman Sachs and JP Morgan of note so far) and some tech surprises (Intel and IBM). Google posted its largest quarterly profit ever Thursday.

 

We could go on and on why Dow 10,000 is meaningless. But we'd rather just shake our heads and thank D10K doubters. Abundant but misplaced worry should support stock markets for awhile yet.  

 

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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