Cheers, yawns as Dow closes above 3,000 Stock market took 9 months to give birth to record DJIA.

April 18, 1991|By Chicago Tribune

NEW YORK -- The Dow Jones industrial average finally has joined the rest of the record-setting stock market.

Every other major stock index has been trading at record highs for weeks, but that hardly mattered as Wall Street quietly celebrated the Dow industrials' first close above 3,000, at 3,004.46.

"There was a certain inevitability about it," said Hugh A. Johnson, chief investment officer of First Albany Corp., of Albany, N.Y., of yesterday's record. "But it's still fun, and it's good news."

The Dow long ago became a popular shorthand term for the market, understood by investors and non-investors as having some cosmic meaning beyond what it is: the price-weighted average of 30 actively traded blue-chip stocks. Price-weighted means the more expensive the stock, the more weight it is given in the index.

As the most widely reported market indicator, it's a financial thermometer. "It's 90 degrees out and the Dow closed up 50" is understood to signify a hot day on and off Wall Street.

And 3,000 is a milestone for the venerable Dow average, which has been around as a continuous market indicator since 1928, longer than any other measure. (The first Dow Jones average appeared in the Wall Street Journal in 1885, but until 1928, companies were shuffled frequently, giving the average less comparative value.)

If yesterday's close of 3,004.46 seemed to be greeted with giant yawns by some and not a little irritation by others, it was only because the gestation period for the Dow's successful assault on 3,000 was so long -- nine months, almost to the day.

When the Dow first briefly pierced 3,000 in July, then had four near-misses in a week, conventional wisdom assumed that the breakthrough was just around the corner. In the sizzling summer of 1990, it was as easy to reach a record high on Wall Street as it was to pitch a no-hitter in baseball. (There were a record nine last season.)

Then Saddam Hussein invaded Kuwait in August.

The world responded with Desert Shield. Oil prices soared, confidence collapsed and the nation was in its first recession in eight years. Despair was rampant in October; the Dow dropped 20 percent.

But the tide turned slowly, and on the night in January the first bombs were dropped on Baghdad, confidence and stocks soared.

Still, 1991 is a more difficult and demanding year and, for the Dow industrials, records have been harder to achieve. Every other broad market average has set several records this year, as they did again yesterday. But the stubborn Dow flirted with 3,000 only once, on March 6, before tumbling back.

In the rapid-fire 1980s, every stock market record, on the up and down sides, was smashed. But in the "olden days," they were a little harder to come by.

The Dow first touched 1,000 in 1966 but couldn't hold that level. It first closed above 1,000 in 1972, then didn't make it to 1,100 for 11 years, when the Great Bull Market of the '80s was working up a head of steam.

In the next five years, the Dow industrials galloped upward, crashing through 17 century marks before setting another record, plummeting 508 points in one day, Oct. 19, 1987.

The 1987 crash did not immediately lead the nation into recession, as many feared. But the Dow, as a proxy for the stock market, has proven anything but a leading economic indicator, predicting several more recessions than have actually happened.

Though the Dow's surge on the night the air war began was dismissed by some analysts as a jingoistic overreaction, historically the average does have a better track record predicting economic recoveries.

Another reason the 3,000 milestone is considered a non-event in some quarters is that only 30 companies are represented in this index. Critics of the Dow as a benchmark of the market or the economy have long argued that broader indexes, such as the Standard & Poor's 500-stock index or the New York Stock Exchange composite index of the almost 1,800 stocks traded on the Big Board, are more accurate measures.

Despite that, Big Daddy Dow endures, and the champagne corks popped yesterday.

The 30 companies in the Dow industrials generally are chosen to serve as proxies for their respective industries. By that criterion, critics sniff, Navistar International Corp. should be removed because it long ago sold the International Harvester agricultural equipment unit that was the reason for its inclusion.

Only 12 original companies remain in the Dow, and just half of the current crop are purely industrial, "smokestack" kinds of companies, reflecting a changing American economy.

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