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Life after Dow 10K
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March 29, 1999: 4:58 p.m. ET
Is the market set for a retreat after closing above the 10,000 milestone?
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NEW YORK (CNNfn) - With the Dow Jones industrial average closing above 10,000 Monday for the first time, stock analysts are somewhat bearish on whether the market can - or should - continue its upward run.
History indicates that the next step for the Dow after hitting 10,000 would be a slide downward.
During the most recent Dow milestones, as when it crossed above 7,000, 8,000 and 9,000 it managed to climb about 1-4 percent higher but after peaking, fell between 10 and 20 percent.
One of the most striking examples of the Dow's "fear of heights" occurred on November 14, 1972, when the blue chip index hit the 1,000 mark for the first time.
(Click here to see a chart of the Dow's movement since 1972.)
In the following days, it rose another 5 percent, then went down for about 2 years. It didn't reach the 1,100 mark until 1983, just over 10 years later.
Few people expect that kind of slump for the Dow now that it has finally closed above 10,000. But some analysts believe that a slight retrenching wouldn't be the worst-case scenario for the market, especially in light of a slew of earnings warnings from some of the market's heavy hitters.
"I get worried about so much optimism and the fact that the market is overvalued," said Hugh Johnson, chief investment officer at First Albany.
"The market needs to let earnings catch up -- wait until we get closer to the year 2000, when we can feel comfortable that the market is not overvalued. If the market stayed the same while earnings rose, then price-earnings ratios would be so darn high."
Stuart Freeman, chief equity strategist at A.G. Edwards, said the Dow will likely trade in the mid-9,000-to-low-10,000 range for the next couple of months as the market digests Monday's landmark close.
Timing is everything
"It's a question of timing," Freeman said. "I don't think 10,000 is way out of the ballpark at all. But any piece of news that prompts a little selling will cause a little more selling at this level."
There has been some hand-wringing on Wall Street because the market's run-up has been led by a very narrow band of stocks, mostly in the large-cap arena.
But Freeman said the market has exhibited strong breadth, noting that a variety of sectors have contributed to the record close.
"Basic industries, financials, techs have all been moving pretty aggressively," Freeman said. "We've seen rebounds in basic industries, which didn't do so well heading into the first quarter."
While analysts generally believe the market's fundamentals and the U.S. economy are strong, they believe the best-case scenario is for the Dow to remain close to its current levels before charging ahead to 10,500 or 11,000.
"I don't think it would be unhealthy to retrench," Freeman said. "The least healthy thing would be for the Dow to keep rising. That would pull the market further ahead of a fair value. Somewhere, maybe three or four months down the road, 10,000 is a fair value. But we think the market may be a little ahead of itself right now." 
-- by staff writer John Frederick Moore
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