The Dow Heads Toward A 12,000 Year-End Close

It would have been preposterous to say the DJIA could close the year at 12,000 back in March when it dropped below 6,600. The market is up 60% since then and trades at nearly 10,500. Another 14% jump puts the index at 12,000. At the rate the market has moved up over the last month, it could pierce that level easily.

Math is one thing and actual event-driven performance another in predicting the market’s moves.

There are a number of triggers that could push the market higher by 2% or more on any given day in December. The first among those would be a November jobs reports that shows that the economy is losing very few jobs. That would support the theory that the recession is long over and that the employment market, which almost always lags GDP, is beginning to catch up.

Housing figures have been good for several months and so have manufacturing numbers. It remains to be seen if those positive trends will continue, but it may not matter. The market could look at M&A and corporate financial transactions more closely than near-term macroeconomic numbers. Companies that are willing to buy other companies, borrow money, or risk the IPO markets are signs that the world of corporate management is willing to bet that 2010 will be a strong enough year to support robust earnings.

M&A activity has begun to pick up sharply. The announcement of another two or three large M&A transactions or hostile takeover bids which carry large premiums will tend to push the market higher. The same is true if Fortune 500 companies are coming to market more often with aggressively priced bond offerings.

The DJIA moved from 10,600 to 12,800 between July 2006 and February 2007. There was not an extraordinary recovery going on in the economy then. There could be one happening now. Any strong evidence to support impressive GDP growth predictions sends the market on its last big leg up in 2010.

Douglas A. McIntyre