The Dow at 5000 On to 6000?: Year-long stock surge cheers investors, but no rally lasts forever.

November 24, 1995

AS AN INDICATOR of investor confidence in the economy, the Dow Jones Industrial Average is sending a rosy signal. In just nine months, the Dow average eclipsed the 4000 level and -- with hardly a pause -- surged past 5000 on Tuesday and pushed on to 5041 at Wednesday's close.

It always helps to keep matters in perspective, though. The stock market is a contrary animal, often falling on good news that disappoints expectations. In fact, the market is more a barometer of analysts' expectations than a true reflection of the economy's strength.

And the Dow Jones Industrials offer a narrow focus: The average is based on the stock prices of 30 blue chip standbys (Sears, Boeing, GM, Kodak, AT&T, Disney) that make up a fraction of an exploding global marketplace.

What has sustained this remarkable rise in stock prices -- over 30 percent so far this year -- is growing faith in the Federal Reserve's ability to keep inflation under control. This, combined with steady but moderate growth, has achieved that "soft landing" Fed chairman Alan Greenspan spoke about.

The projections for 1996 are for more of the same. Mr. Greenspan, looking for reappointment to the Fed post next year, is expected to ease credit soon and try to keep the economy gently humming through the fall elections. That would be fine with President Clinton, who knows that an incumbent always has the upper hand if economic news is uplifting.

And yet, what comes up must come down. There will be a sharp correction, or two, or three. Any unexpected event could trigger a wave of sell orders. But with so many positive economic signals, many Wall Street wizards see a Dow 6000 before long. Why not? It only requires a 20 percent rise -- far less than we've seen this year.

Throughout this century, the direction of the stock market has been strongly upward, though with some precipitous plunges along the way. What the Dow at 5000 does tell us is that corporate America is enjoying good times and expects a strong year ahead. Predicting more than that would be high-risk business.

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