10,000 marks new chapter for Dow

Now that the Dow Jones Industrial Average has finally managed to close above the magical 10,000 mark, it is a good opportunity to put this latest milestone into historical perspective. While round numbers on indices do not have any known financial or economic significance, they do capture the imagination of the public and market pundits alike.

At the dawn of the new millennium there seems to be even greater significance being attached to the 10,000 level on the Dow.

The Dow's first big milestone was 100 which it first crossed in 1906. However, by the start of the 1920s the index was still hovering around the 100 mark. The 1920s was a period which exhibited some features that are resonant of the current era of rapid technological change. It was the decade that saw mass production of the radio, the first public demonstration of television and when the first colour and "talkie" movies were produced.

The "New Era" bull market of the 1920s saw milestone after milestone breached as the Dow finally peaked at just under 400 in late 1929. The subsequent stock market crash and Great Depression are familiar to all.

It was not until the 1960s that equity investing came back into vogue in a big way. Still, by the early 1960s, the Dow was only hovering around the 600 mark. This was a period which saw rapid world economic growth, but also was a period of political uncertainty and social unrest. The Bay of Pigs, the Cuban Missile Crisis and the Vietnam War characterised the tensions between the superpowers. It was also a decade of racial tension in the US which witnessed the assassination of John F. Kennedy and Martin Luther King.

During this period, the Dow flirted with 1,000 a number of times without actually breaking above it. It was not until late 1972 that it finally closed above this landmark. However, its moment of glory proved to be fleeting as OPEC created the oil crisis and fanned the already rising inflation rate.

A global recession in 1973-74 created a severe bear market and even though the index briefly re-attained the 1,000 mark in 1978, it only managed to finish the decade barely above its opening level of 800.

Another recession in 1981-82 held the Dow below 1,000 for a few more years. However, once the ultra-high inflation of the previous 10 to 15 years had been wrung out of the system, the Dow finally broke above the 1,000 level at the beginning of 1983 - more than 10 years after its first break above 1,000.

Since then there has been no looking back. It only took four years for the market to double to 2,000, which it reached in early 1987. The stock market crash of 1987 only served to slow the Dow's rate of advance and was by no means a fatal blow. Just eight years later and the index had doubled again to surpass the 4,000 milestone in early 1995.

The pace of increase since then has been nothing short of breathtaking. Two years on and by the summer of 1997 the Dow had yet again doubled to overcome the 8,000 hurdle, and today, less than two years later, another 2,000 points have been added to the index. Given the apparent ease with which the Dow has climbed in recent years the optimists have plenty of reason to argue that 10,000 will be a new floor rather than an insurmountable ceiling. The Cassandras can, however, point to the very real risk that the market may be reaching a level which could represent a peak for a very long period of time.

For now there still seems to be no stopping the relentless rise of the Dow, however, it would be the height of folly to ignore the lessons that can be gleaned from the world's longest and best-known stock market average.