Does 13,000 matter?

Posted at 11:54 AM on February 21, 2012 by Bob Collins (6 Comments)
Filed under: Economy

The Dow Jones 30 Industrials hit the 13,000 market today, and most experts say traders don't care.

So why do we see these people plastered on newspapers and websites if they don't care?

"One reason that the Dow thousand-point barriers generally don't move the market is that Wall Street traders really don't pay much attention to the index," CNBCs Jeff Cox says. "The public uses the Dow as a guideline both to market and economic health, but traders focus far more on the Standard & Poor's 500, which has a much broader reach than the Dow and its 30 components."

It's also 13 points below last year's closing high.

Cox says 13,000 might lure people back to the stock market. If so, that might be just in time to watch it fall, The Street says:

Market participants are likely take some profits when the index reaches this psychological level. The last time the index closed above 13,000 was in May of 2008. Analysts have been speculating since January that equities are due to cool off after a steep run up this year. The 13,000 level might provide a key opportunity for investors to take money off the table.

Smart Money disagrees.

But it's not just that market prices are nearly back to pre-crisis levels, say advisers -- the market climate has also started to improve. "In the last few years, the market has been so much more news-driven, we've had short-term wild and random volatility that makes the markets much more difficult to anticipate," says Mike McGervey, the president and founder of McGervey Wealth Management. In 2012, that volatility has dropped significantly, with daily market moves being much smaller. McGervey says his technical analysis of recent chart patterns suggests that if the Dow does break through 13,000, stocks will likely post gains in the next quarter, too.

How did the Dow get to 13,000? A confluence of good news, of course, writes Jill Schlesinger on MarketWatch:

The answer is three-fold: (1) Greece/Europe didn't collapse, (2) the economic data in the U.S. has improved and (3) central banks across the world have turned on the spigots to make money abundant.

That might also indicate the problem. Many a stock market rally, buoyed by encouraging news from Greece, has succumbed to a subsequent piece of bad news from Greece. And oil prices are shooting up, threatening to stall a recovery.

If there's one thing people who follow these things closely know how to do, it's worry. But stocks started this week just 1% from their all-time high, a confirmation that the experts were right who preach ignoring the Dow and worrying about Joe Mauer's health instead.

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Comments (6)

Oooh! Shiny round numbers! That suggests that it must mean something.

Or as someone else might say, bah, it's just another meaningless number. Pay attention to the fundamentals, and not the top line numbers.

Posted by davidz | February 21, 2012 12:22 PM

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The Dow 30 reaching the numerical threshold of 13,000 may provide an opportunity to offer a small psychological boost (and a few talking points in the blogosphere and Twitterville), but the S&P 500 is a better, broader index.

David is correct: as investors, we need to pay attention to the fundamentals. IMHO, Europe, the U.S. recovery and the residuals from the banking mess could still drag performance downward. This investor is not ready to party by any stretch of the imagination.

Posted by John O. | February 21, 2012 12:40 PM

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And Standard & Poors is a credible source because -? Because their AAA ratings of CDOs helped cause the worst financial crash since the great depression? No, that can't be it.

Posted by Jim Shapiro | February 21, 2012 1:14 PM

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Jim, don't confuse the S&P 500 stock index with the "other" part of S&P which does the credit rating stuff.

Posted by John O. | February 21, 2012 2:28 PM

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John O. - Is it an evil twin thing? :-)

Posted by Jim Shapiro | February 21, 2012 3:24 PM

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If Apple was in the Dow Jones industrial average instead of Cisco, the it would be around 15,000. So, there's that. The DOW is not all it's cracked up to be.

Posted by Justin Heideman | February 21, 2012 4:47 PM

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