Economy

Dow Moves Back To 10,000

The DJIA is heading back to 10,000 and it may not take long to get there. The index moved into “correction” territory yesterday, down 10% from its peak. Another 1,ooo points and it will have moved back into “bear” territory.

Is it any wonder? The DJIA moved up by 70% from its March 2009 lows. Most of that it occurred before the beginning of this year. Experts say that the drop recently is mainly due to Europe and the chance that the economy is the US is showing signs of strain. That view is only partially true.It is more likely that the index will move down sharply because the largest stocks, those weighted most in the DJIA and S&P 500, have, in may cases doubled. Apple (NASDAQ: AAPL) may be the best case in point. But, even with the correction, the major banks have also made impressive runs from the March trough. They have more exposure to Europe and a flattening of GDP than most companies.

The other run which will likely lose is legs is in the companies that rely heavily on consumer spending. McDonald’s (NYSE: MCD) and the soft drink companies have sprinted up. And, they are now by many measures overpriced. Stock buybacks and increased dividends have tended to hide that.

The most endangered share prices are probably those of big tech. Oracle (NASDAQ: ORCL), Cisco (NASDAQ: CSCO), IBM (NYSE: IBM), and HP (NYSE: HPQ) have advanced on the theory that corporate spending is rebounding and will rebound further. That is probably no longer true. Worries about the European economy will not go away with the drop in the euro. The long-term debt problems in the regions will take years to work out. In the meantime, corporate spending in the region is bound to drop, which will hurt both the US and China tech export business.

The bull may be ready to take a rest, not so much because of Europe but because individual stock prices in the US have outrun the economy

Douglas A. McIntyre

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