NEW YORK (CNN/Money) -
Dow 11,000. It's so close Wall Street can taste it.
The world's most widely watched stock market gauge closed at 10,940.55 Friday and was within about 32 points of the milestone at one point Monday morning. The last time the Dow finished above 11,000 was in June 2001.
Of the three most widely watched U.S. market barometers, the Dow is the only one that's remotely close to its all-time high, trading just 7 percent lower than the 11,722.98 record close from Jan. 14, 2000. The S&P 500 and Nasdaq are about 20 percent and 60 percent below their respective March 2000 peaks.
Still, if the Dow climbs above 11,000 and starts approaching a new high, is that necessarily a cause to rejoice?
"Sometimes these perceived milestones could be a little bit silly," said Liz Ann Sonders, chief investment strategist with Charles Schwab & Co. "There's nothing significant technically about 11,000. The more important number would be the all-time high."
Others, however, say that the psychological boost that Dow 11,000 would provide should not be ignored.
"Normally I'd say it's just a number but I think it's relatively important this time around," said David Joy, capital markets strategist with American Express Financial Advisors. "If we break through 11,000, it might be indicative of a general feeling that the economic expansion is more broadly based."
Sam Stovall, chief market strategist with Standard & Poor's, agreed that Dow 11,000 would be a significant milestone. He points out that after the stock market crash in 1929, it took 25 years before the Dow set a new high.
So if the Dow were to approach a new high little more than five years after the bubble burst, that could be a signal that the latest rally is truly part of a new bull market -- and that the broader markets won't have to trade sideways for decades, Stovall said.
"Old" stocks leading the way
Still, the Dow's strength may not necessarily mean that happy times are here again.
In an uncertain environment, many investors have shunned riskier companies in favor of steadier names that also offer healthy dividends. The average dividend yield for the 30 Dow stocks is 2.3 percent.
It hasn't hurt that there's been some merger activity in value-oriented sectors like telecom and consumer durables either, with Dow components SBC (Research) and Verizon (Research) striking deals to buy AT&T (Research) and MCI (Research), respectively, and Procter & Gamble (Research) agreeing to buy Gillette (Research).
The Dow's resurgence has also been boosted by old-line stocks in sectors like oil, basic materials and consumer durables. Exxon Mobil (Research), Caterpillar (Research), Altria (Research) and DuPont (Research) are four of the top five performers in the Dow over the past six months.
"The old school has taken center stage," said Richard Peterson, chief market strategist with Thomson Financial.
Will the rally stall?
But what's truly remarkable about the Dow's surge is that it's come even though so many Dow components are struggling right now.
The spike in oil prices is hurting General Motors (Research) and Alcoa (Research). Concerns about the safety of some high profile drugs have whacked Merck (Research) and Pfizer (Research). American International Group (Research) has come under regulatory fire. Hewlett-Packard (Research) is looking for a new CEO.
Stovall said the rise in the Dow despite the split performance among Dow stocks illustrates why investors need to be widely diversified in their portfolios.
"This is a perfect example of how diversification works. You can still hit all-time highs even though you're holding onto stocks that are struggling. Leaders overcome the laggards," he said.
And Thomson Financial's Peterson said if the pharmaceutical and tech sectors start to perform better, it might not be long before the Dow reached a new high. "If some of the troubled Dow components got into line, the Dow could go to 12,000," he said.
But others aren't that bullish. Joy is predicting only single-digit percentage returns for the Dow in 2005.
"Clearly the trend is upward but I'm not sure we get to a new high this year," he said, adding that increased commodity costs could pressure corporate profit margins while labor costs could begin to creep upward as well. And ongoing concerns about rising interest rates may cap any stock rallies this year.
So the most important thing for the market will not be whether the Dow tops 11,000 but whether it can stay there for an extended period.
"It will be a big emotional lift and jolt for investor confidence after everything people have been through," said John Lynch, chief market analyst with Evergreen Investments. "But if we can hold onto it that would be the real development. Nerves are still raw. 11,700 will be tough to bust through."
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