Online NewsHour: Dow 10000 -- March 30, 1999



	DOW 10,000

March 30, 1999

For the first time in history, the Dow Jones Industrial Average closed above 10,000. Phil Ponce and guest discuss what's next for the stock market.

PHIL PONCE: The Dow Jones Industrial Average is the most widely recognized measure of the US Stock market. Twenty years ago today, the Dow closed at 862 points. Since then, it's climbed steadily, with two major interruptions in 1987 and 1998. Yesterday, the Dow made history when it closed over 10,000 for the first time ever. With me now to talk about this new closing benchmark is Gretchen Morgenson. She covers the stock market for the New York Times.

PHIL PONCE: Gretchen, on the front page of your paper today, the story of this 10,000-point closing -- front page of your papers, on the front page of papers all over the country -- why is it such a big deal, why the level of interest?

GRETCHEN MORGENSON: Because more and more Americans own stock today, Phil. The fact is that 45 percent of households invest in the stock market in some way. And that is up dramatically from a 1980's level of 14 percent. So you see, there are more people involved, more people are committed and more people are interested.

PHIL PONCE: And that's what people mean when they talk about the merger of Wall Street and Main Street?

GRETCHEN MORGENSON: Absolutely. You have a lot more people talking about it in magazines, newspapers, on television shows and it is becoming a way of life for more and more Americans. Of course, with 401(k)'s, in which they have to make their investment decisions themselves, whereas before the retirement plans were really managed by professionals or by someone else. So, it's really an active investment community that involves everyone from, you know, youngsters in high school who are taking stock market courses all the way up to retirees who are watching the market daily.

PHIL PONCE: And, Gretchen, speaking of stock market courses, what exactly is the Dow Jones Industrial Average?

GRETCHEN MORGENSON: The Dow Jones Average is an average of 30 industrial stocks -- names that would you know, everyone knows -- like McDonald's, Wal-Mart, Boeing, a broad mix of stocks. And what the number 10,000 refers to is the conglomeration of all of those stocks' prices, which is then multiplied by a number that is very complicated. I won't go into that, but that's how you get to the 10,000-point level. It reflects the conglomeration of all of those stock prices put together.

PHIL PONCE: And that's why they call it an average -

GRETCHEN MORGENSON: That's right.

PHIL PONCE: -- because it's averaged out by this formula that -- the details of which you are sparing us.

GRETCHEN MORGENSON: Right. Right. You don't need to know. But the good news is that it's going higher, although today we dropped back a little bit. It does reflect, although a lot of people do not own per se the Dow Jones Industrial Average, it does reflect a lot of the big name companies that more and more Americans have been piling into because they have been performing very, very well.

PHIL PONCE: And sticking with the 30 companies, who picks them and why those 30 companies?

GRETCHEN MORGENSON: Well, it's picked by Dow Jones, which is the publisher of the "Wall Street Journal" and other publications, and they make the decisions based on what they think reflects the economy, you know, you'll have a certain number of financial companies, a certain number of, you know, heavy industries, a certain number of retailing companies. So they try to reflect a broad mix of the economy in the nation.

PHIL PONCE: And even though the term "industrial" is in the term, they are not necessary industrial. You mentioned Coca-Cola -

GRETCHEN MORGENSON: Correct.

PHIL PONCE: -- McDonald's - Disney; these are not industries like steel industries -

GRETCHEN MORGENSON: They're not the old metal benders that you think of as the industrials, no.

PHIL PONCE: For Wall Street, what does it mean to have hit 10,000?

GRETCHEN MORGENSON: It's very euphoric because it's -- and historic -- because it really reflects the really amazing strength of the US economy. We have had an almost uninterrupted eight and a half years of growth in this country. This is unheard of. Usually we have booms and then we have busts. But this one has been a boom for a very long time. We have had Gross Domestic Product growth, which has been super impressive. And also our economy has been able to withstand tremendous pressures from external events in Asia. Of course the worldwide tremors in economies in Asia, Russia last summer, more recently South America - yet, our economy just perks along. It's like the Energizer Bunny. It just won't stop.

PHIL PONCE: And what is the conventional wisdom about why it won't stop?

GRETCHEN MORGENSON: Well, part of it is that we are a strong economy because we have -- American corporations have become much more efficient than ever before. Technology plays a huge contribution to this because it allows the efficiencies to come into the market, and what that means is that it translates to a lot more money for people to spend, a lot more money for them to invest. And just broad-based good times. And the more people that spend more money, the better the companies do. You also have to take into consideration the interest rate scenario, which has been tremendously helpful to the stock market. As you know, we had a conflagration in some economies last fall and last summer and the Federal Reserve Board responded very quickly by cutting rates three times. And that is extremely favorable on a number of levels. Americans have more money in their pocket because they are spending less to finance their homes. All of this has the effect of really increasing the value of Americans' portfolios.

PHIL PONCE: Gretchen, today the Federal Reserve Board left interest rates where they were, again continuing -- is that a good sign for the levels that the stock market is hitting right now?

GRETCHEN MORGENSON: It's a very good sign. It would have been a bad sign had they tightened or raised rates. No one really expected them to do that. So the fact that there was no movement out of the Fed today was just further confirmation that there really aren't any horror shows on the scenario on the horizon that the Fed is worried about that would make them want to raise rates.

PHIL PONCE: Gretchen, in the past when the Dow Jones has hit a marker like a 1,000 marker, what kind of an impact has that had on the behavior of individual investors or institutional investors? What does it do?

GRETCHEN MORGENSON: It depends which one you're talking about. When it hit 1000 for the first time, which was back in the 60's, I believe, it backed off immediately and took a long, long time for it to get back there, I mean more than ten years, I think. So in that case, it was a high water mark that was not returned to for quite a while. But when you have seen it at other levels, such as say 5000, which was less than four years ago, it just really kept on going. So you can't really make generalizations about what it will do from here. There is, of course, the initial reaction which is, well it's going to go almost -- it's always going to go higher because there is so much euphoria around. But you can't guarantee that, either. It's really a toss up.

PHIL PONCE: And since it just happened yesterday, is it too early to say, or what are some of the well known names on Wall Street predicting is going to happen at this point?

GRETCHEN MORGENSON: Well, some of the more famous bulls on the street who have been right, by the way -

PHIL PONCE: And bulls are people who believe the market is going to go up. Bears think it's going to go down.

GRETCHEN MORGENSON: They are the positive ones. They include Abbey Joseph Cohen at Goldman Sachs, and others believe that the market will go to, I don't know, maybe another 5 percent more this year, which doesn't sound like a lot, but we're already up, I believe 9 percent on the Dow Jones Industrial Average so far this year. So if you were to tack on another 5 percent, that's a quite attractive return on an annualized basis.

PHIL PONCE: And help me with the numbers. What would that get the Dow Jones up to, 5 percent? Someone was saying around 11,500? Is that the range?

GRETCHEN MORGENSON: Well, that brings us up 15 percent from 10,000. So, that's a quite optimistic view. I think looking at maybe 10,500 is more like it.

PHIL PONCE: Gretchen, in the short time that we have left, there is a war going on and conventional wisdom I thought was that the markets do not like instability. Is it having any impact, what is happening in Kosovo?

GRETCHEN MORGENSON: Well, you're right Phil about the uncertainty. That is always a negative for the markets. I've got to believe, however, that the markets simply believe that this war will not spread. If they felt -- if investors felt that this was a true threat that it was really going to expand dramatically and that we would not be able, that NATO would not be able to stop Milosevic in his tracks, that you would see it in the stock market in a negative way.

PHIL PONCE: So at this point are you saying that there is simply not a perception that the nation's economic interests are in jeopardy at this point?

GRETCHEN MORGENSON: That's right. That's right.

PHIL PONCE: Gretchen Morgenson, thank you very much.

GRETCHEN MORGENSON: You're welcome.