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Boy, what a climb. In last year’s June issue, black enterprise predicted that the Dow Jones Industrial Average would rise to the 10,000 mark. On March 29, the prognostication held true: the Dow closed at a lofty 10,006.78. Within two days, however, the industrials retreated to 9,786.16 due to profit-taking, fears of an interest rate hike, renewed inflation worries and the prospect of war in Kosovo.
By April 5, investor skittishness had subsided. On the first trading day of the second quarter, the Dow shot up 174.82 points to 10,007.33 in response to the Labor Department’s report that the unemployment rate was 4.2%, the lowest since February 1970. It confirmed institutional and individual investors’ optimism about the vigorous economy. Moreover, the news drove other indices to record-shattering highs: the Standard & Poor’s 500 rose to 1,312.12, overshadowing its top performance on March 18, and the Nasdaq Composite Index jumped to a record 2,560.06 points, surpassing its best showing on February 1. By April 7, the Dow surged another 121.82 points to 10,085.31 (see be Indicators).
Which stocks led the rally? You guessed it. Shares of Internet and technology stocks such as Yahoo! (Nasdaq: YHOO), America Online (NYSE: AOL) and International Business Machines (NYSE: IBM) vaulted to new highs on hopes of strong first-quarter earnings and industrywide consolidation. Other active issues were Microsoft (Nasdaq: MSFT), Intel (Nasdaq: INTC) and Cisco Systems (Nasdaq: CSCO), the market leaders be recommended over the past few months. (See “Cashing In on Tech Stocks,” March 1999.)
Steven Singleton, senior vice president and director of research at Robert Van Securities and a member of the be Investment Roundtable, views Dow 10K as a “symbolic event. We will continue to see a trend of strong GDP [gross domestic product] growth and benign inflation.”
Adds Singleton: “At some point, there will be a correction. That’s why it will pay to invest in good stocks and be on the lookout for those that may break down.” The symptoms of weakening stocks: increased price volatility and continuous earnings downgrades.
C. Kim Goodwin, portfolio manager for American Century Growth Fund (up 7.2% for the first quarter compared with 4.84%, which includes reinvested dividends, for the S&P 500), says that the Dow 10K represents “a solid environment for earnings growth, but we focus on equities that are growing faster than the broader market.” In fact, EMC Corp. (NYSE: EMC), Microsoft and AOL helped drive her portfolio in the first quarter. But Goodwin cautions investors against putting too much stock in any single sector, including technology. “There’s no way of predicting if the market will have a correction,” she says. “The best prospects for growth are owning a diversified portfolio.”