The Dow Jones Industrial Average ($INDU) briefly topped 11,000 today before slipping back to close at 10,997. It's a benchmark that carries less symbolic weight than Dow 10,000, a milepost the index crossed for the first time in more than a year on Oct. 14. But analysts say investors are right to pay it some attention.
Let's take a closer look at 11,000.
From a technical perspective, the number isn't a particularly significant, says Ryan Detrick, the senior technical strategist at Schaeffer's Investment Research.
- Market Dispatch: Dow briefly tops 11,000, gains 70
In fact, in at least one way, the real party was over March 23, when the Dow crossed 10,800, a technical resistance point (or a mathematically derived indicator of a true market hurdle), says Anu Sharma, the managing director of Nasdaq's Market Intelligence Desk at Nasdaq.
But that doesn't mean 11,000 isn't important. Because individual investors still appear worried that the market will deliver "another face-ripping drop like we saw in September 2008," crossing 11,000 would be psychologically important, Detrick says. A rally that lifts the Dow above 11,000 could become a self-fulfilling prophecy if it encourages retail investors to move money back into the market, he says.
The timing of hitting 11,000 is also significant. The 11,000 plateau was last reached in September 2008. That may feel like a long time ago, but it represents a remarkably short period for such a turnaround.
Of course, that blazing speed brings up a larger question: What's fueling this rally?
"A lot of traders right now are scratching their heads, saying, 'Why are we back at this point?'" Sharma says.
So far, analysts say the bullish run has been less about real growth than traders' belief that a deep recession will be followed by a strong recovery, as has historically been the case. But "there's no law that says that has to happen," says Rodney Johnson, the president of HS Dent. The fundamentals on the economy simply aren't strong enough to support the current rally, Johnson says.
That could mean that the trip to 11,000 will be short-lived. "How far can this rubber band get stretched between what the economy is doing and what the market is doing before one of them has to capitulate?" Johnson asks. "And the economy doesn't capitulate."
Investors can watch the bond market for signs of where the Dow is headed. If the yield on a 10-year goes above 4%, that could signal a sharp drop for equities, says John Lekas, the manager of the Leader Short-Term Bond Fund (LCCMX). "I think you could flip a coin," he says. The current rally is momentum-driven, "and maybe the fundamentals catch up, or maybe they go the other way."
This article was reported by Sarah Morgan for SmartMoney. It was updated on April 9.
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