Dow climbs back over 10,000

After making several unsuccessful runs at 10,000 in recent weeks, the Dow finally broke through to close at 10,008.16, its highest close since May 2002. Yesterday's rally, which pushed the average up by 86.30 points, or 0.9 percent, was sparked by a stronger-than-expected jump in retail sales and forecasts of better earnings from some semiconductor companies. For the year, the market is up almost 20 percent, welcome news to investors who have endured three straight years of falling stock prices. While the 10,000 mark is primarily symbolic, analysts said crossing the barrier should help to boost investor, consumer, and business confidence -- all important to sustaining the economic recovery. It's also a measure of how far the economy has come after being battered by terrorism, corporate scandals, war, and fears of war.

It was only about two years ago that the Dow plunged to a five-year low of 7,286.27. In March, as the US prepared to invade Iraq, the Dow stood at 7,524.06.

Still, the Dow is still off its January 2000 peak of 11,722.98, reached at the height of the Internet bubble that Federal Reserve chairman Alan Greenspan famously said was built upon "irrational exuberance." Whether share prices continue to rise will depend on investors believing that the economy and corporate profits will continue to grow, analysts said.

"What the market wants to see is confirmation of a sustained recovery," said Gary Thayer, chief economist at A.G. Edwards & Sons in St. Louis. "They want to see fewer layoffs and increasing industrial production."

Of prime importance is job growth, said Sung Won Sohn, chief economist at Wells Fargo Banks in Minneapolis. For much of the past two years, the US has been suffering through a so-called "jobless recovery" and only began adding jobs in modest numbers in August.

The nation is still far from regaining the more than 2 million jobs lost in the recent downturn.

"The next major piece is employment," Sohn said. "Until that falls into place, the market will still be wondering if this recovery is for real."

In recent months, however, investors have been betting that it is indeed for real. Most economic data have been very strong. The Commerce Department last month reported that gross domestic product -- considered the broadest measure of economic activity because it measures the output of all goods and services -- grew at its fastest rate in nearly two decades.

Productivity is soaring, and so are corporate profits. Thomson First Call, the research firm that surveys market analysts, said profits of the 500 largest public companies were up 21 percent in the quarter that ended Sept. 30 from the previous year, and are expected to grow 22 percent, from a year earlier, in the quarter ending Dec. 31.

Even the employment picture has brightened somewhat, with layoffs stabilizing and the economy adding jobs in each of the past four months. Adding to the optimism was Tuesday's statement by the Federal Reserve that it still plans to hold its benchmark interest rate at 45-year lows for a "considerable period."

"We've come a long way off the bottom," said Nigel Gault, a US economist at Global Insight, the Waltham-based consulting firm. "There's has been quite a recovery in stocks."

Economists add that the rising stock market, as evidenced by the Dow, could add more fuel to the recovery as it boosts confidence among investors, consumers, and businesses. Financial advisers say they are seeing investors, who pulled out of the market during its slide, coming back, and that in turn is helping to push share prices higher.

And both businesses and consumers are more likely to spend if they see the values of their shares rise, fueling demand and new growth, analysts said. So far, analysts add, the run-up in stock prices appears to be built on solid ground -- profits and an improving economy -- unlike the speculative bubble of the late 1990s.

Mary Jane Regis, a Worcester teacher, said she spent most of the market downturn refusing to open her financial statements, and instructing her financial adviser not to tell her anything until there was good news. Now, with her portfolio regaining much of its value, she's thinking about moving forward with plans to buy a new home or a second home.

"I am beginning to breather easier," she said. "The lesson is to be patient, but did it scare the heck out of me."

That scare, financial advisers say, has nonetheless made investors more circumspect than they were a few years ago.

"We've gotten to 10,000," said Gault, the Global Insight economist. "But that doesn't mean we're heading for the sky."

Robert Gavin can be reached at rgavin@globe.com.