Don’t just read the news, understand it. At long last, the Dow Jones industrial average has breached 12,000

Dow 12,000

At long last, the Dow Jones industrial average has breached 12,000. The market’s six-year ordeal, spanning the tech crash, corporate scandals, and Wall Street double talk, is over. You can once again mention stocks at cocktail parties and even open up your 401(k) statements. Come on, feel the noise!

O.K., maybe not.

The blue-chip benchmark has indeed surpassed the old record of 11,723 touched in January, 2000. In fact, the Dow is posting new closing highs with regularity – four days in a row, at one point in October. But if the old record was noteworthy for the way it reflected a national zeitgeist, this one is notable for its sense if anticlimax. This time, people barely think about them. “CNBC may be making a lot of Dow 12, 000,” says Strategas Research Partners chief investment strategist Jason D.Trennert. “But the average investor is not.”

That, ironically, might be the better news.

It’s not difficult to see why investors are underwhelmed.

The Dow is at a record, but that’s thanks largely to its antiquated method of price weighting, which gives high-priced shares more clout in the overall average than low-priced ones. For example, IBM, a $92 stock, has nearly triple the weighting of $35 General Electric Co., a more diversified company worth $220 billion more than Big Blue.

There just isn’t much joy in celebrating an index in which only 10 out of 30 components are near a record. Credit Exxon Mobil amd United Technologies for the Dow’s recent strength. But those stocks have made a much smaller impact on another blue-chip gauge, the Standard & Poor’s 100-stock index, which is down 24% from its record largely because it’s weighted by market cap. In fact, 15 of the 20 most widely held stocks in customer accounts at Merrill Lynch & Co., are off their all-time highs, and not by a hair: the average decline is 48%.

The view doesn’t look much better from on high. The bigger Standard & Poor’s 500-stock index, which serves as a benchmark for most money managers, would have to rally 12% to revisit its record. And the NASDAQ would have to more than double. These numbers aren’t adjusted for inflation; doing so would put even the record-setting Dow below its 2000 peak.

Yet many of the reasons why the record itself is meaningless suggest that stocks might actually be at the start, rather than at the end, of something big. No one can predict the future, of course. But for all the hype over the recent records, the U.S. market is unquestionably a lot cheaper now than it was at the time of the Dow’s last fateful peak.

Abriged from the November 13, 2006 issue of the “Business Week”

Notes

1.the tech crash (of 2000) –крах рынка акций высокотехнологичныхкомпаний

2. 401(k) plan –сберегательный пенсионный план, позволяющий работнику фирмы вносить часть зарплаты до налогообложения в инвестиционный пул под управлением работодателя (название - по разделу Налогового кодекса США). Федеральные налоги на эти суммы отсрочены до ухода на пенсию или увольнения с фирмы. Накопленные средства могут инвестироваться в депозитные сертификаты, взаимные фонды, акции, облигации

3. noise –толки, разговоры (много шума по поводу чего-либо)

Come on, feel the noise! –Время порадоваться со всеми вместе!

1. zeitgeist –originally a German expression that means “the spirit of the time” (“дух времени”). It denotes the intellectual and cultural climate of the era.
2. CNBC(former “Commercial News and Business Channel”) – a global network, a business and financial news TV channel, breaking the major stories of the day and providing up-to-the-minute market information, as well as detailed analysis and interviews with business leaders
3. market cap =market capitalization
4. Big Blue =IBM ( “International Business Machines”)
5. Merrill Lynch –one of the world’s leading financial managementandadvisory companies, providing financial advice and investment banking services
6. The view does not look much better from on high – Положение не лучше, если взять более крупные индексы
7. for all the hype - see ex.24 on page 76 of the Krasnov file

Vocabulary

blue chip benchmark –индекс, в который входят первоклассныеакции; to serve as a benchmark– служить критерием

clout –ударная или пробивная сила; большое влияние; to have clout in smth – обладать большим влиянием в ч-л.

diversified company – диверсифицированная компания: компания, производящая множество разных товаров (услуг), которые продаются на разных рынках (в том числе в разных странах)

money manager – человек, управляющий финансовыми ресурсами, портфелем финансовых инструментов

to rally – резко вырасти после снижения ( о курсах ценных бумаг или товарных ценах); rally– значительное повышение курсов ценных бумаг или товарных цен после их снижения

to adjust for inflation – привести в соответствие с текущим уровнем инфляции; adjusted for inflation – с поправкой на инфляцию

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