The Bull Tops 2000

• Share

For years it was viewed as an almost impossibly small dot on the financial horizon, a historic goal to be pursued in frustrating fits and starts. Suddenly, in 1986, the target became closer and more tantalizing. As 1987 brought a fresh frenzy of trading on the New York Stock Exchange, everyone on Wall Street, as well as investors across the U.S. and around the world, was caught up in the drama: Just when would the Dow Jones industrial average gather its full force and break through the psychologically portentous barrier of 2000?

Last week, more than 14 years after the Dow leaped the 1000 mark, the big moment finally arrived. As Big Board floor traders cheered and filled the air with confetti, the closing bell rang last Thursday with the index solidly perched at 2002.25. Then on Friday, after briefly falling from its record height, the Dow rallied to its sixth straight gain of the new year and finished the week at 2005.91.

If shattering the 2000 mark was primarily a symbolic triumph, it was still the most exhilarating achievement yet in one of the longest and strongest bull markets in U.S. history. Since the advance began in 1982, stock prices have more than doubled, raining hundreds of millions of dollars of profits on investors.

On Wall Street, however, today's victories always make way for tomorrow's doubts. Will passing 2000 propel the Dow to still greater heights? Or will the rise run out of momentum now that the magic goal has been reached? (Students of stock-market history recall all too well that after the Dow passed 1000, it stalled for a decade before it cracked 1100.) And perhaps most important of all, why is the market so high when the economy continues to be so lackluster?

Considering such questions mere quibbles, many optimistic analysts are convinced that the crashing of the 2000 barrier is the start of another major market upsurge that might last anywhere from two to five years. That would be a truly extraordinary event, since the current bull has already lasted for 52 months, nearly twice as long as the 30-month average life of postwar bull markets. Nonetheless, declares Steven Einhorn, chief portfolio strategist for the Goldman Sachs investment house, "there is a lot of life left in this bull market."

Other sages of the investment community agree. One of Wall Street's hottest gurus, Georgia-based Robert Prechter, has used an arcane branch of analysis known as Elliott Wave Theory to predict that the Dow is on a march that will peak at 3600 by 1988. In December 1985, Yale Hirsch, editor of the newsletter Smart Money, forecast the date of the Dow's 2000 day within roughly a week. Now Hirsch predicts that the index may climb to 2300 within three months and reach 2700 later this year.

On the other hand, no less a figure than Liberal Economist John Kenneth Galbraith, writing in the January Atlantic Monthly, warns of parallels between the current breathtaking stock-market expansion and the pre-Crash era of 1929. Maintains Galbraith: "The question now, in the winter of 1987, is whether the stock market is or has been repeating its history . . . The wise, though for most the improbable course, is to assume the worst."