Dow Closes Above Milestone 5,000 Mark

The Dow Jones industrial average closed above 5,000 for the first time Tuesday, stamping an exclamation point on a unprecedented bull market that has seen stocks rise more than 30% this year and double in value since 1990.

Traders let out a cacophonous cheer and threw confetti on the floor of the New York Stock Exchange when Chairman Richard A. Grasso clanged the closing bell, with the Dow average of 30 industrial stocks standing at 5,023.55, up 40.46 points on the day. The widely watched index had crossed 5,000 for the first time on Monday, but couldn’t sustain the gain.

“It’s really an achievement,” said Perrin Long, a veteran securities analyst at Brown Bros. Harriman & Co. in New York. “I can remember when the Dow was under 400 when I got into the business in 1956.”

Reaching 5,000 not only marked the latest millenary milestone for Wall Street, it also was the brightest illustration yet of how dramatically and unexpectedly the stock market has shot up this year--despite sluggish economic growth, small gains in Americans’ incomes and fiscal woes in Washington.

The Dow has raced ahead more than 1,000 points in just the last nine months; it pierced 4,000 on Feb. 23. Never before has the average--developed 111 years ago by Charles Dow, a co-founder of Dow Jones & Co.--gained so many points in so little time.

“Quite frankly, I’m very surprised how quickly we got here,” said Jack Baker, head of stock trading at Furman, Selz Inc. in New York.

In fact, Tuesday’s record is only the latest watershed in the biggest and longest bull market in history, during which the market has soared more than sixfold since 1982.

This year’s gain is less dramatic on a percentage basis, because the market’s climb to 5,000 from 4,000 is a 25% increase, whereas its advance from 2,000 to 3,000--which took place between 1987 and 1991--was a 50% gain.

The Dow, though recognized around the globe as being synonymous with the market’s daily gyrations, also is a very narrow measure of the market’s overall value. And even as the average climbs higher, some analysts fret that the spectacular rally might not be sustained much longer.

Nonetheless, some broader measures of the stock market--such as the Standard & Poor’s 500 index--are also trading at or near record highs. And their historic advance this year reflects how the world has increasingly looked to U.S. stocks as the among the most attractive repositories for their investment dollars, analysts said.

That affection was validated by the record $330 billion that investors poured into stock mutual funds in the first nine months of 1995 alone--more than the total amount in those funds just six years ago. Much of that cash has come from millions of Americans who are using mutual funds available through their workplace pension or retirement plans as their long-term investment vehicles.

They’re attracted by the market’s rising tide of prices, and more have learned that stocks outperform most other investments in the long run. In turn, their steady stream of mutual-fund deposits is helping to drive prices higher.

Over the last six years the stock market’s upward march, as measured by the Wilshire 5000 stock index, has doubled investors’ stock market wealth to roughly $6 trillion, according to the index’s publisher, Wilshire Associates in Los Angeles.

The market’s rally might seem incongruous to some people in view of the economy’s sluggish growth, continued corporate layoffs, weak consumer spending, meager gains in workers’ incomes and budget squabbles in Washington.

But many of the other factors that preoccupy Wall Street could not be in better alignment for bidding stocks higher.

The economy’s modest growth is occurring against a backdrop of mild inflation and low interest rates, which have cut borrowing costs for businesses and individuals. Many investors anticipate that the Federal Reserve Board will trim rates even further within the next three months to help the economy keep expanding.

Another key impetus is surging corporate profits, helped in part by deregulation, technological advances and a wave of corporate mergers, divestitures and other “restructurings.”

In addition, Washington recently moved closer to striking a budget accord that could result in lower taxes and lower interest rates.

The appeal of stocks also partly reflects the spread of capitalism around the world in recent years, notably in regions like Eastern Europe where communist economies have been replaced by privatized industries and burgeoning securities markets.

“Each of these things is part of the equation” for lifting stocks higher, stock trader Baker said.

There’s another key factor at work: People have few other options to earn the hefty returns that stocks are producing. Investments that have tempted savers at various times in the past--such as real estate, commodities, precious metals and banks’ savings rates--have all lost their luster.

By contrast, in the 1970s and early 1980s--when inflation and interest rates skyrocketed--stocks were so out of favor that Business Week magazine declared “The Death of Equities” on its cover.

Now, stock mutual funds have assets of $1.2 trillion--nearly quadruple their level of 1989, according to the Investment Company Institute, the fund industry’s trade group. Roughly one-third of all U.S. households--about 30 million--now invest in mutual funds, the ICI says.

Some veteran Wall Streeters tend to dismiss the significance of a big, round figure like 5,000 as “just a number.” They say the glamour of the achievement has diminished each time the Dow has climbed another 1,000 points, and by itself the 5,000 number does mean little.

Certainly Tuesday’s achievement didn’t have the psychological impact that was felt in the early 1980s, for example, when the market finally stayed solidly above 1,000 for the first time. That’s because the market had spent nearly 20 years attempting that feat.

As fast as this year’s 1,000-point rally occurred, there were times when the market had to “climb a wall of worry” as the Wall Street adage goes. Technology stocks, which were a big propellant for the market early in the year, were sold off late this summer after some computer and semiconductor firms posted quarterly profits that were below Wall Street’s expectations.

Some indexes of technology stocks still are not rising in tandem with the Dow industrials. For example, the technology-laden Nasdaq Composite Index posted a loss Tuesday, and the Philadelphia Stock Exchange’s index of semiconductor stocks has tumbled 27% since early September.

That divergence in market sectors--if it lasts for an extended period--can portend a sharp reversal for stocks overall, said Eric Miller, chief investment officer for Donaldson, Lufkin & Jenrette Inc.

“It’s one reason to be a little edgy” about the market in the next few weeks, he said.

There are other reasons. For all the euphoria surrounding the 5,000 level, achieving such levels often triggers reflexive selling among some investors--a trait that’s especially possible this time because people want to lock in their hefty profits, traders said.

Also, the fact that the market ran up 1,000 points so fast makes people nervous that the market is poised for a sharp, if only temporary, pullback or “correction.”

But the market has a habit of surprising people. After the Dow eclipsed 4,000 nine months ago, most analysts never expected it would cross its second 1,000-point hurdle in the same year.

* MARKET MILESTONES: A look at the Dow’s advances since 1982, and what’s next. D1