Video: Dow record passed, now what?

updated 10/4/2006 8:19:04 AM ET 2006-10-04T12:19:04

The Dow Jones industrial average finally reached new heights Tuesday, extending Wall Street’s seven-year recovery with a record closing level after climbing into uncharted territory in trading earlier in the day.

The index of 30 blue chip stocks ended the session at 11,727.34, according to preliminary calculations, wiping out the previous record of 11,722.98.

Earlier, the Dow crossed its old trading high of 1,750.28, rising up to 11,758.95. Both of the previous records were set Jan. 14, 2000.

While investors welcomed the Dow’s latest achievement, it comes at a time the stock market is more conservative, even more muted, than the Wall Street of early 2000. Then, investors were still piling exuberantly into high-tech stocks. In 2006, the market’s gains come only after investors’ careful parsing of economic data and corporate earnings reports.

Tuesday’s advance came on the second straight day that oil prices fell sharply, helping to calm fears about inflation and possible interest rate increases. But the market as a whole has been choppy, with traditionally defensive sectors such as pharmaceuticals and utilities leading the market higher since its May and June decline, said Doug Johnston, head of U.S. trading at Adams Harkness in Boston.

“I think we break out to the all-time high, then we could get a blow-off correction off of that,” Johnston said.

The Dow, whose well-known large-cap stocks include aluminum producer Alcoa Inc., discount retailer Wal-Mart Stores Inc. and the Walt Disney Co., has recovered ahead of the broader Standard & Poor’s 500 and the Nasdaq composite index, which also peaked in early 2000. Those indexes were inflated — overinflated in the case of the Nasdaq — by the dot-com bubble.

The S&P 500’s high close was 1,527.46, and the index remains more than 12 percent away from that milestone. The Nasdaq is even farther off its highs and no one expects it to eclipse its record of 5,048.62 any time soon.

To reach new highs, the Dow had to recover not only from the high-tech collapse, but also recession and the effects of the Sept. 11, 2001, terror attacks. The stock market was further shaken by corporate scandals at companies including Enron Corp. and WorldCom Inc., and the Dow sank to a five-year closing low of 7,286.27 on Oct. 9, 2002, nearly 38 percent off its record high close.

The market’s recovery was helped by more than four years of solid corporate profit growth, and more recently, the Federal Reserve’s decision to halt its more than two-year string of interest rate hikes.

According to preliminary calculations, the Dow rose 56.99, or 0.49 percent, at 11,727.34. The Dow had briefly surpassed its closing high on Thursday and Monday before retreating.

Major Market Indices

The broader stock indicators also closed higher. The S&P 500 index was up 2.79, or 0.21 percent, at 1,334.11, and the Nasdaq rose 6.05, or 0.27 percent, to 2,243.65.

Advancing issues led decliners by more than 8 to 7 on the New York Stock Exchange, where volume came to 1.70 billion shares.

The decline in oil prices was the catalyst of the day. A barrel of light crude settled at $58.68, down $2.35, on the New York Mercantile Exchange.

Oil prices have had a stunning fall from their intraday high for the year of $78.40 a barrel, reached in July. Other commodity prices have dropped as well, with gold descending from prices earlier this year that it hadn’t seen for three decades.

“When oil and gold start to back off, that’s a sign that the economy is slowing and inflation is not a fear,” said Joseph Sunderman, vice president of research and development, Schaeffer’s Investment Research in Cincinnati.

The entire energy sector was lower, with Exxon Mobil Corp. down $1.59 at $65.41 and Chevron Corp. down $1.57 at $62.94.

Bonds fell, with the yield on the benchmark 10-year Treasury note rising to 4.62 percent from 4.61 percent late Monday. The dollar was mixed against other major currencies, while gold prices fell.

Marvell Technology Group Ltd. fell $2.29, or 12 percent, to $16.80 after it said its third-quarter revenue would drop 10 percent from its second-quarter revenue. Separately, the company also said it plans to restate past financial results after a probe into its historical stock option practices turned up discrepancies.

Quest Diagnostics Inc., which provides diagnostic testing services, dropped $10.90, or 17.90 percent, to $50 after losing a nationwide contract with health insurer UnitedHealthcare Inc. The existing agreement expires at the end of the year.

Kohl’s Corp., said its sales at stores open at least a year, a closely watched measure of retail performance, rose 16.3 percent in September. The low-price chain, which also boosted its third-quarter profit forecast, rose $2.04 to $67.53.

Fresh concerns about the upcoming release of Sony Corp.’s much-anticipated PlayStation 3 video game console and reports of erratic performance dragged Sony shares down 63 cents to $39.10.

The Russell 2000 index of smaller companies fell 0.46, or 0.06 percent, to 718.35.

Overseas, Japan’s Nikkei stock average closed down 0.08 percent. Britain’s FTSE 100 dropped 0.35 percent, Germany’s DAX index slid 0.12 percent, and France’s CAC-40 fell 0.45 percent.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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