NEW YORK — The last time the Dow Jones industrial average hit 10,000 — in October, 2008 — it was crashing down through the five-digit barrier and the economy was in meltdown.
Yesterday the Dow surged back up through 10,000, culminating a stunning 53 percent rally since hitting bottom in March.
Does this mean the worst economic crisis since the Great Depression is over?
Not quite. But 10,000 is a milepost on the way to recovery.
For investors who stayed in the market while the Dow plunged from its all-time-high close of 14,164.53 in early October, 2007, to 6,547.05 only seven months ago — taking their 401(k) along for the crash — yesterday's close of 10,015.86 marks a partial recovery of lost investments.
It means they're roughly halfway back to where they started.
Yet this has been more of a traders' rally than an investors' rally, meaning that many average investors remain on the sidelines, preferring instead to put their money into safer bonds and money-market funds.
The stock market comeback that began March 9 has been led by big banks, which have been propped up by billions of dollars in taxpayer bailouts.
Economists and traders worry that long-term gains cannot be sustained unless the government help is withdrawn.
“My biggest concern is much more akin to taking the IV tube out of the patient,” said Art Hogan, chief market strategist at Jefferies & Co. “We have to move from an economy that is stimulated by the government to an economy that's self-sustaining. That needs to be orchestrated extremely carefully.”
For many Americans, a real recovery comes down to one issue:
With the U.S. unemployment rate at 9.8 percent and expected to crest above 10 percent, 15 million jobless Americans may find little to cheer about in Dow 10,000. High unemployment will cool the sizzling stocks.
“If you don't get a sustained recovery, the market's overvalued,” said Steven Ricchiuto, chief economist at Mizuho Securities USA.
“I believe it's not going to be sustained. The payroll numbers are telling you that. When you look at the tax collections the government is getting, that's lower. People are not getting hired.”
Even the most optimistic bulls do not predict another 50 percent surge over the next half-year.
More likely, analysts say, is a “sideways churning,” as the economy wrestles to bring down unemployment and companies try to generate profit through new revenue, not just cost-cutting.
Bearish economists predict a “double-dip” recession that would see stocks take another dive as unemployment continues to rise.
Others were more upbeat after the market crossed 10,000 yesterday.
“It's almost like an announcement that the bear market is over,” said Arthur Hogan, chief market analyst at Jefferies & Co. in Boston. “That is an eye-opener — ‘Hey, you know what, things must be getting better because the Dow is over 10,000.'”
Ethan Harris, head of North America economics at Bank of America Merrill Lynch, described it as a “relief rally that the world is not coming to an end.”
The mood was far from the euphoria of March, 1999, when the Dow surpassed 10,000 for the first time.
The Internet then was driving extraordinary gains in productivity and serious people debated whether there was such a thing as a boom without end.
“If this is a bubble,” The Wall Street Journal marveled on its front page, “it sure is hard to pop.”
It did pop, of course. Then came the lost decade.
So where does the market go from here?
Some market watchers see 10,000 as an illusion because there are still lingering threats to an economic recovery — rising unemployment, weak consumer spending, and a battered housing market.
The investors who have driven stocks higher since March are the pros: hedge funds and institutions whose furious selling hastened the collapse of the market in the first place.
And red flags are showing up in the technical charts that professional investors use as they make their trading decisions.
The Dow sits about 18 percent above its average of the past 200 days.
“The market by all technical indicators is completely overbought, just like back in March it was completely oversold,” said Rich Hughes, co-president of Portfolio Management Consultants in Los Angeles.
On the other hand, Wall Street analysts say 10,000 is more than just a number — it can have legitimate psychological implications.
A recovering stock market soothes the psyche as people watch their portfolios and 401(k) retirement accounts being replenished.
And if people start spend-ing again, that may persuade more investors, including some reluctant pros, to go back into the market.
“Psychology plays a huge role in investing, so when you're trying to overcome the huge levels of panic and fear that we've seen over the last year, psychology shouldn't be discounted,” said Carl Beck, a partner at Harris Financial Group.