Dow reaches new milestone: 12,000

Published October 20, 2006

Wall Street investors apparently aren't superstitious of "Black Monday."

On Thursday, the 19th anniversary of the ominous day the Dow Jones Industrial Average plunged 508 points, the benchmark Dow closed above a new, symbolic threshold: 12,000.

Because of Black Monday, when the Dow tumbled to close at 1,793.80, investors have historically been skittish about October.

Thursday, things were strikingly different. The Dow closed at 12,011.73.

For the day it was up 19.05 points and for the year it's up 12.08 percent.

Here's a look behind the numbers:

Just what is the Dow Jones Industrial Average?

It's a well-known market indicator based on the stock prices of 30 large companies, from Alcoa and Altria to Wal-Mart and Walt Disney. Although not representative of the entire market, it gives investors a good idea of how big stocks are faring. The original Dow index, published in 1884, had just 12 members, 11 of them railroad companies.

What's the big deal about Dow 12,000?

The number has no special meaning, but big round numbers attract attention and give some investors a psychological boost, making those in the market feel good about being there and those not in the market feel like they are missing out.

But isn't something important going on?

What's important is the trend, and lately it has been up. The Dow is up 2.85 percent just for the month of October, hitting new all-time highs on 9 of the 14 trading days.

Are other market indicators up, too?

Two other widely-followed indicators, the Standard & Poor's 500 Index and the Nasdaq Composite Index, also are up for the year, 9.5 percent for the S&P and 6.2 percent for the Nasdaq, but they aren't setting new highs like the Dow. The S&P is still about 10 percent below its all-time high, while the Nasdaq is trading at less than half its peak.

Why are stocks going up?

Investors are thinking positively about the economy. "It's a combination of relatively favorable and still rapidly growing earnings in the last quarter and a relatively low and stable interest rate environment," said economist Steven Bolten at the University of South Florida in Tampa. Some other favorable signs: Inflation looks relatively benign. Oil prices have retreated and lower gas prices could give consumer spending a spark. There's also a lot of money sitting on the sidelines, and it's more likely to go into stocks now that many investors have soured on the real estate market.

But couldn't stocks reverse course?

Certainly. No one can predict the future. Some worrisome signs: The economy is cooling. If the downturn in housing accelerates, it could cause problems. Stagnant or declining prices will make it more difficult for homeowners to tap their equity for consumer spending the way they've done in the past.

Also rising payments on adjustable rate mortgages are pinching some homeowners and contributing to an increase in foreclosure rates.

Are investors getting giddy over this upturn in stocks?

Not yet. Many of those who got burned in the tech stock crash are still wary of the markets. However, investors are starting to pay close attention. "I had a wonderful day in the market," said Oldsmar retiree Nat Maggio, 82, who said his stocks gained 1 percent Thursday.

"The market seems to be heading in the right direction as far as corporate earnings are concerned."

How soon will we see the Dow at 13,000?

That's anybody's guess. However, hitting round numbers should get progressively easier. Getting from 1,000 to 2,000 required a 100 percent increase. Getting from 12,000 to 13,000 is only an 8.3 percent increase.

Helen Huntley, Times personal finance editor