Momentum party goes on for Dow

Wall Street nibbled at the 10,000 mark on the Dow Jones Average yesterday, but its attainment highlights again the market's phenomenal rise since the growth rate radically accelerated at the beginning of 1995 (from roughly 40 per cent of the present level).

In the first half of the 1990s, the Dow maintained a pedestrian advance at the average annual rate of 7 per cent. Since then growth has been 25 per cent a year.

Even so, the Dow's 30 venerable blue chips have often failed to keep up with the big technology growth stocks that remain outside the club.

Since mid-decade, the Standard & Poor's 500 has climbed at an annualised pace of 28 per cent and the Nasdaq Composite at 32 per cent, meaning the Nasdaq has outgrown the Dow by a quarter in just over four years.

Spare a thought, however, for the smaller stocks in the Russell 2000, which has managed only 12 per cent annual growth over this period, and is now scarcely higher than it was two years ago.

Value hunters have been left for dead on Wall Street in the second half of the 1990s but the momentum party cannot go on for ever.

Morgan Stanley Dean Witter has been crunching valuation ratios worldwide and, not surprisingly, produces the conclusion that US equities are the world's most expensive, judged against the 10-year averages.

Wall Street stands at 53 per cent above the 10-year average, using a composite indicator of eight fundamental measures. Some of the euro-bubble markets, including the Netherlands, Finland and Spain, are at 2530 per cent premiums.

Britain comes in at 16 per cent above the average, but France and Germany are close to past norms.

Japan is also 16 per cent ahead of its 10-year average, but Morgan Stanley pleads that this is due to "depressed earnings" and says that, on other measures, Japan is inexpensive.

Of course, it all depends on whether a 0.9 per cent dividend yield basis - the dividend as a percentage of the current share value - is regarded as historically cheap or, in absolute terms, still a turn-off, worse even than the minuscule 1.1 per cent on the Standard & Poor's.

At any rate, many global strategists have decided this is the moment to make another Tokyo play, rotating out of high-priced Wall Street and scandal-hit Europe.

Foreigners have a recent record of getting Japan wrong, having been swamped in past rallies by eager domestic sellers; but they hope this is not just another traditional ramp ahead of the March 31st banking balance sheet date.

Certainly, heavy supply is looming in Tokyo as cross-shareholdings come up for sale.

On the other hand, financial tension has eased.

Foreign investors first drooled about the potential for re-engineering back in 1993, when the Nikkei was very close to where it is now, but Japanese culture dictated that an economic slump would be preferable. Still, the Nikkei Average has bounced by 21 per cent from its 1999 low.

Back on Wall Street, the analysts are starting to get just a little concerned about inflation. The jump in oil prices signals not so much a serious pressure point in itself as the end of a period in which falling prices of commodities and Asian imports have suppressed underlying inflation.

For the moment, however, the threat from rising Treasury bond yields has retreated.

Now, at least, we shall find out which Wall Street institutions really have a 10,000 bug in their systems.