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Dow 16,000 is latest milestone, but can the long rally continue?

Updated: 2013-11-22T05:09:38Z

By MARK DAVIS

The Kansas City Star

After bumping its head for a few days, the stock market broke through a hard-to-fathom threshold Thursday, closing above 16,000 on the Dow Jones industrial average.

Dial the calender back less than 5 years ago and the Dow teetered at a mere 6,547. What a run!

The stock market’s incredible rise — 144.5 percent on the Dow despite a weak economic recovery and persistently high unemployment — had even The Wall Street Journal asking last weekend whether this is a bubble.

“My only problem is I really haven’t participated in it that much,” said Callom Jones, a financial adviser at Trend Capital Management in Overland Park. “I don’t trust it.”

Much of Wall Street, however, remains confident.

“Remember, we’re investing in stocks. We’re not investing directly in the economy,” said Dwayne White, chief investment officer at Tower Wealth Managers in Kansas City.

White said the all-time-record Dow reflects an almost ideal environment for stocks. Inflation is low, and the modest recovery keeps it that way while still chipping away at unemployment.

Corporate earnings continue to climb. And historically the next few months are the season for a good market, White noted.

All of that helped lift the Dow 109.17 points Thursday to a close at 16,009.99. Mark that as a 22 percent gain this year.

Two other popular indexes climbed but continued to bump their heads near record levels. The Standard & Poor’s 500 came within 5 points of finishing above 1,800 for the first time, and the Nasdaq composite fell about 31 points short of 4,000.

Stocks also are getting a big boost these days from super low interest rates, which is where some experts turn a bit weak-kneed. Interest rates are near historic lows because the Federal Reserve has driven them there.

Jones, for example, said the Fed’s aggressive actions mean the stock market is running on false signals, essentially inaccurate information. Without the Fed’s persistent and unprecedented intervention, stocks wouldn’t climb this high.

“I think it’s a bubble,” he said.

Others raise the prospect of a bubble when a profitless company such as Twitter Inc. makes its debut on Wall Street with a bang reminiscent of 1999..

Stocks did slump this fall when the Fed talked about backing off a bit from its $85 billion-a-month stimulus program. And the Dow fell back from its 16,000 summit on Wednesday after fresh word that the Fed is still working on pulling back a bit.

Not to worry. If the market takes a tumble here, it will be just to catch its breath.

“We’re believers,” declared Bill Griener, who heads investments at Mariner Wealth Advisors in Leawood.

Greiner said stock prices generally are “a little stretched,” but that is all. They’re not out of line with what investors historically have paid for companies’ earnings.

And the economy is seeing manufacturing take a stronger role, which Greiner said was a good sign of better economic times ahead and a plus for stocks.

But, seriously, the Dow has added 9,453 points in less than five years. It didn’t reach 9,453 until 1999, and that was a stock market bubble.

Rich Weiss, a senior vice president at American Century Investments, offered some perspective. Think back to March 9, 2009, when the Dow hit that low point 9,453 points below its current reading.

“We were staring into the abyss,” Weiss said. Those lows were figuring in “virtually the end of the capitalist system, which didn’t occur.”

A big chunk of the 9,453 point climb, he said, simply erased the damage that fear during the financial crisis had caused to stock prices.

Current stock prices seem much more reasonable when compared with stock prices before the market’s nosedive in 2008 and early 2009.

That’s how Warren Buffett, the legendary investor who heads Berkshire Hathaway, labeled stocks.

“I would say that they’re in a zone of reasonableness,” he said during a CBS broadcast this week. “They’re definitely not way overpriced. They’re definitely not underpriced.”

To reach Mark Davis, call 816-234-4372 or send email to mdavis@kcstar.com.

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