DOW’S RUN TO 14,000
Just inches away from a historic 14,000-point high, the Dow Jones industrial average still needs all the help it can get this week if investors want to keep embracing Wall Street’s mystifying midsummer dream.
Investors have ignored shopping slowdowns, the tumbling dollar and a burned-out housing boom to open their portfolios wider to the sunny buying side of the street, hoping the economy can withstand any turn of events.
Market watchers are certain about one thing – Wall Street optimists have developed a new comfort level from Friday’s lifetime high set in the broader Standard & Poor’s 500 index, which is the favored barometer of professional traders.
But economists aren’t sure if the stunning but brief show of investor support for buying blue chips last week will be enough to push the Dow ahead for the added 93 points it needs to break 14,000. The Dow closed at 13,907.25 Friday.
“We expect a thin trading range all week, not the significant highs like we’ve just had,” said economist Aaron Smith of Economy.com.
“Wall Street’s already hit its sweet spot where it is now, but there is a serious risk of a misstep,” Smith said.
That could come from the single wildcat factor of surging oil prices, now nearing the all-time high of $78.40 a barrel set here a year ago, on July 14, 2006.
Crude traded at $77 in London, raising concerns that its rise won’t stop until crude hits an alarming $80 a barrel.
“When you get to the new threshold of $80 [a barrel] oil, people start talking about $100 oil,” Smith said, adding that the $80 mark is unlikely unless oilfields are crippled by new geopolitical calamities.
Meanwhile investors are awaiting new data due this week that could give hints on the economy’s footing and inflation. Economists expect few surprises and tame inflation for both factories and consumers alike.
Federal Reserve chief Ben Bernanke could raise new concerns later in the week when he testifies to Congress about fallout from the meltdown of the mortgage bond market, which exceeds $1 trillion in so-called subprime mortgages, not counting an equally sizable amount of derivatives from shaky junk bonds.
“The markets are going to be dying to know what the balance of risks are going to be in the light of the subprime fallout,” said David Brown, chief European economist at Bear Stearns, referring to Bernanke’s speech.
While many investors have been soothed by the stock rallies, many others are worried that the junk mortgage crisis and higher rates will spill over into healthy credit markets, the lifeblood of companies around the world.