When the Dow Jones soared briefly above 10,000 on December 9, there was an instantaneous flashback – this was, after all, a high not seen since the heady days of the internet bubble. Even though it fell back 41.85 points to close at 9,923.42 that day, the Dow’s surge created quite a buzz. As the most widely recognized index, the Dow behaves like the market’s psychological barometer with figures of 5,000 and 10,000 the attention-grabbing symptoms marking depression and mania. Individual investors are especially sensitive to the Dow’s swings.
The first time the index shot past that mark was in March 1999. To mark the occasion the then NYSE chairman Richard Grasso and then New York mayor Rudolph Giuliani were on the Big Board’s floor to hit the gavel and throw their ‘Dow 10,000’ hats into a sea of traders who broke into spontaneous applause. On December 9, the index only flirted past 10,000 for about two minutes so there wasn’t the same kind of celebratory scene at the end of the trading day. But given that the index has rebounded by 37 percent since October 2002 as we went to press, the day’s rally was a big deal.
The Dow’s brief milestone, coupled with a string of upbeat earnings forecasts for 2004, suggests the global economic slowdown is coming to an end. With companies predicting modest growth, consumers spending like Beckham and investors feeling more optimistic on the whole, the classic signs of recovery are here.
But before uncorking the champagne, let’s take a moment to reflect on the other market changes impacting on public companies. The mutual fund scandal, which broke in the US and expanded to Europe, could have a direct effect on your company’s stock price, if it hasn’t already. Allegations of market timing and late trading have caused pension funds to pull out of mutual funds. Take Putnam – its assets under management fell precipitously to $14 bn in just one week in early November. In early December Calpers meted out more punishment by deciding to replace Putnam as the manager of its $312 mn large-cap equity portfolio.
As pension funds put their money right back into the market – buying so-called ‘untainted’ mutual funds, hedge funds and other investment vehicles – the outflows at certain funds have not impacted on the market as a whole.
However, to offset the effect of pension fund departure, some mutual funds are selling stocks they own, likely beginning with their most liquid shares – widely held mega-cap companies. Some of the big players’ performance has been lousy since the scandals broke, which suggests the mutual fund debacle is just hitting home for some high-profile IR professionals.
Just when the Dow flirts with 10,000, yet another challenge emerges. Happy New Year.
