Dow Hits Highest Level Since ’01

For Wall Street, it was better late than never: The Dow Jones industrial average closed at a 3 1/2 -year high Tuesday, becoming the last major market index to top its best levels of last winter.

The Dow jumped 97.83 points, or 0.9%, to 10,759.43. That eclipsed its previous 2004 peak of 10,737.70 set Feb. 11 and was its highest level since June 13, 2001.

The blue-chip Dow, the best-known U.S. stock index, has been dragging behind most other market gauges for much of this year. But that may be helping it now, as some investors hunt for relative bargains as Wall Street’s year-end rally rolls on, analysts said.

“I think we’re seeing some people looking to buy the laggards,” said Jack Ablin, chief investment officer at Harris Trust & Savings Bank in Chicago.

The 30-stock Dow is up 2.9% this year, the weakest advance of any major market index. By contrast, the broader Standard & Poor’s 500 index is up 8.4% and the average New York Stock Exchange issue is up 11.3%.

Nearly every market index rose Tuesday as investors continued to pour money into equities, encouraged by the robust rally of the last eight weeks.

Veteran traders say the bullish mood has been fueled by optimism about the economy, the pullback in oil prices since late October and President Bush’s reelection, among other factors.

Many investors also may be looking to play the usual seasonal trend, analysts say: Because January historically has been an up month for stocks, there is an urgency to get in before December ends, said Todd Clark, head of listed-stock trading at Wells Fargo Securities in San Francisco.

“A lot of people remember last January, when we had a strong first few weeks” of the new year after a hot December, Clark said.

Indeed, the S&P; 500 index rose for nine consecutive weeks from the end of November 2003 to the end of January 2004.

“Seasonally, it’s not a good time to be negative on the market,” Clark said.

Stocks’ rally on Tuesday had no particular spark, although it was helped by a brokerage analyst’s upgrade of semiconductor giant Intel, and by a bullish business outlook from railroad company Union Pacific.

Winners outnumbered losers by more than 2 to 1 on the New York Stock Exchange and by nearly that margin on Nasdaq.

The S&P; 500 rose 10.80 points, or 0.9%, to 1,205.45, closing just slightly below its 3 1/2 -year high of 1,205.72 reached Dec. 15.

The technology-dominated Nasdaq composite jumped 23.06 points, or 1.1%, to 2,150.91. The Nasdaq index hit a 3 1/2 -year high of 2,162.55 on Dec. 15, before some mild profit taking set in.

The Dow has been held back this year in part by a rash of problems at major drug companies.

Pfizer and Merck are Dow stocks. Pfizer is down 29.3% year to date and Merck is off 30.8%, as both companies have struggled with evidence suggesting that some of their blockbuster drugs have significant safety issues.

On Tuesday, Pfizer added 68 cents to $24.97 and Merck gained 47 cents to $31.98 as bargain hunters moved in.

Some of the market sectors that have been red-hot this year -- such as utilities and transportation -- aren’t represented in the Dow industrials index.

Those industries have their own Dow indexes. The Dow utilities index hit a 3 1/2 -year high Tuesday, rising 2.36 points, or 0.7%, to 335.57. And the Dow transportation index closed at a record high, gaining 61.21 points, or 1.6%, to 3,792.09.

The Dow transports index has rocketed 26.1% this year; the Dow utilities are up 25.7%.

Investors also have favored small-company stocks over blue chips this year, for the fourth consecutive year.

The Russell 2,000 index of smaller shares gained 8.15 points, or 1.3%, to 646.20 on Tuesday, and is up 16% year to date. It reached a record high of 648.61 on Dec. 15.

But as money continues to flood into the market, some analysts fear that investors will face a scenario similar to what occurred at the start of this year: Stocks will be hot for a short time as the new year begins, only to soon fizzle, and at best tread water for months thereafter.

John McGinley, editor of the Technical Trends market newsletter in Wilton, Conn., said some widely watched indexes of investor optimism were at levels typically seen just before a market rally peaks.

Too many investors, he said, are asking the question, “Is it time to buy now?” Usually, when the crowd gets the fever, it’s close to the end, he said.

Others, however, say it may be premature to predict that the market is topping, as long as long-term interest rates stay subdued and oil prices hold at current levels or fall further.

The 10-year Treasury note yield eased to 4.17% on Tuesday from 4.19% on Monday. Near-term crude oil futures slipped 2 cents to $45.76 a barrel in New York.

Among Tuesday’s market highlights:

* Intel rose 79 cents to $23.49 after a Lehman Bros. analyst raised his rating on the stock to “overweight” from “equal weight,” citing expectations for strong fourth-quarter earnings.

* Union Pacific led transportation stocks higher after the company said its fourth-quarter earnings would be higher than expected because of higher sales from hauling commodities. The stock soared $3.42 to $65.67.

Norfolk Southern, another rail giant, jumped $1.06 to $36.21; CSX rose 79 cents to $39.82.

* Optimism about the economy helped to lift industrial shares including Dow member Caterpillar, up $1.91 to a record $96.26; U.S. Steel, up $1.42 to $53.40; and PPG Industries, up $1.10 to $68.

* Real estate investment trusts, a hot sector for most of this year, attracted more buyers. Vornado Realty rose 74 cents to $74.74 and Washington REIT gained 70 cents to $33.40.

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Lagging Dow

The blue-chip Dow Jones industrial average is trailing other market indexes this year.

Index Tues. close 2004 gain

Dow trans. 3,792.09 +26.1% Dow utils. 335.57 +25.7 S&P; small-cap 325.88 +20.5 Russell 2,000 646.20 +16.0 S&P; mid-cap 655.50 +13.8 S&P; 500 1,205.45 +8.4 Nasdaq comp. 2,150.91 +7.4 Dow indus. 10,759.43 +2.9

Source: Bloomberg News