What's next for the Dow?

By MSN Money

The Dow Jones Industrial Average ($INDU) broke through its all-time high Tuesday, climbing past the previous intraday record of 11,750.28, set on Jan. 14, 2000. Shortly after 1 p.m ET, the index rose to a new high of 11,755. To answer the obvious question -- what's next? -- we turned to five of our columnists.

Jon Markman: Not the same old Dow

Now that the Dow has broken through its all-time high amid a decline in energy prices and a surge in consumer confidence, it's interesting to note that very few of its individual components are actually hitting their own all-time highs.

In fact, as far as I can tell, there's only one: Procter & Gamble (PG, news, msgs). This has happened because the Dow industrials has changed significantly in the six years since the last high, in January 2000. The designers of the list threw out lagging companies like International Paper (IP, news, msgs) and Eastman Kodak (EK, news, msgs), and added fresher faces such as Pfizer (PFE, news, msgs) and Verizon (VZ, news, msgs).

The Dow is clearly stronger as a group than its components are individually. So what is driving the success of the big-cap index besides PG? Well, there's the strength of the financial stocks in the index, such as JP Morgan (JPM, news, msgs). And troubled Merck (MRK, news, msgs) has certainly battled back valiantly from its lows.

But my favorite leader of pack now is McDonald's (MCD, news, msgs). Since 2003, the world's largest restaurant chain has experienced one of its longest positive strings of same-store sales growth in history. It's been driven by exactly the type of strength that I admire most: not cost-cutting or financial engineering, but pure, raw innovation and customer satisfaction.

Read Markman's SuperModels column.

Jim Jubak: Curb your enthusiasm

I have trouble seeing what drives us much higher here. Positive seasonality after mid-October is a plus as everyone chases the end of the year rally could take the market up through the end of the year, with maybe the Nasdaq leading the charge, taking over from the Dow. But ultimately we need something that tells us convincingly that growth and earnings will be better in 2007 than expected.

To that degree last week's durable numbers -- new orders down 0.5% in August when everybody was expecting a gain and down 2.7% for September -- is a kick in the teeth. Even worse: Business investment growth is slowing and the bullish theory was that business investment would take over from consumer spending as the economy's growth engine

Read Jubak's Journal.

Roger Ibbotson: The price is right

Although the Dow has had a dramatic climb recently, it’s really just approaching the levels we saw before the tech bubble burst in 2000. But the big difference between today’s peak and the last is that earnings have seen significant growth over the last six and a half years, driving price-earnings ratios down into the mid-teens.

Stocks are now much more reasonably priced, and even with a slowing economy, I expect them to rise both in the short term and the long term. My long-run forecast for the stock market is an average annual return of about 9%.

Michael Brush: Buy tech, oil services

Would a record level for the Dow suggest further highs are on the way? The folks who read stock charts, including Phil Erlanger of Erlanger.com, are skeptical because broader stock indexes -- such as the S&P 500 -- are still well below their records.

Worse news, at least for the short term: Early October is normally a bad time for stocks, and strong Septembers like the one we've just had typically lead to weak year-end trends.

Longer term the picture is better: Interest rates remain relatively low despite the Fed's two-year run of rate hikes. Consumers, who drive two-thirds of economic growth, are still spending, thanks in part to personal incomes rising at an annual rate of 6.5%. Corporate-profit growth rates are in the mid-teens.

And even though the Dow is at a record level, most stocks look relatively cheap. Using earnings projected for the coming twelve months, the S&P 500 has a price-earnings ratio of 14.1, near 11-year lows, says Ed Yardeni, the chief investment strategist at Oak Associates.

Continued solid economic growth favors cyclical stocks, above all. This means areas like technology, oil-services stocks, since continued economic strength will support oil prices above $60.

Read Brush's Company Focus column.

Liz Pulliam Weston: Think long term

If you’re investing for a goal more than 10 years in the future -- retirement, say, or a young child’s college education -- then your smartest move now that the Dow has hit a new high is pretty much the same as when the stock market index hit its recent lows.

And that is: Do nothing.

A wise person once said that, for a long-term investor, trying to respond to the day-to-day gyrations of the stock market is rather like trying to listen to a symphony note by note. It’s frustrating and ultimately pointless.

What really matters to the long-term investor isn’t what happens today or tomorrow, but over the next 10, 20, 30 or more years. In those longer periods, historically, stocks have gone up.

If you feel you must do something to mark this occasion, then take a look at your portfolio and see if it needs rebalancing. When you rebalance, you sell some of your winning investment classes and buy some more of those that are lagging to restore your target asset allocation. Many long-term investors are guilty of not doing this often enough; once a year is about right.

Otherwise, go back to work.