Dow 14,164.43

Most of the recent media coverage about the Dow Jones Industrial Average is whether it can hold 13,000. It has been pointed out, though, that this is merely a number with no real significance. What is likely a better benchmark is whether the index can match its all-time high of 14,164.43. That would be an indication that the market believes the economy is headed back toward strength last seen in 2006.

The most remarkable thing about the DJIA’s recent activity is that it fell so far and recovered as quickly as its did. From its peak on October 9, 2007, it dropped to 6,700 in March 2009. It has recovered to current levels since then. The round trip took less than four and a half years.

The challenges for the DJIA to rise the 9% needed to reach its previous high are few. Gross domestic product may grow as much as 2.5% in the current quarter. Unemployment could well decline each month between now and the middle of the year. Pending home sales reached a two-year high in January. Oil prices are the largest drag on the economy, but it has not been proven yet that $3.50 gasoline will damage consumer spending, which rose in the fourth quarter, based on Federal Reserve data.

Perhaps most important, the market has shown resilience. The concerns that the recession could double dip a year ago pressed the DJIA back below 10,700. Since then, the index has rallied well more than 10%. And the rally has gained strength since the end of last year.

There are enough positive indications about the economy, and S&P 500 earnings for Q4 2011 (almost all of which are now posted) are strong enough, that the DJIA probably will trade above its all-time high within a few months.

Douglas A. McIntyre