Dow Jones average surges to second straight closing high

NEW YORK -- There is as much relief as there is celebration on Wall Street now that the Dow Jones industrial average has set new record highs for the first time in nearly seven years -- these milestones are more a sign of recovery than achievement.

The index of 30 blue chip stocks reached its second straight closing high Wednesday, soaring 123.27 to 11,850.61, after rising as high as 11,851.25 during the session. On Tuesday, the Dow wiped out its old closing high of 11,722.98 and its previous trading high of 11,750.28, both of which had stood since Jan. 14, 2000.

Yet despite Wednesday's surge, today's Wall Street investors are a more cautious lot than they were six years and nine months ago, and that is why it has taken the Dow, which reached closing highs on a daily basis during the high-tech boom, so long to come back.

They have reason to be conservative -- they have seen a series of events starting with the dot-com bust and recession and including the aftermath of the Sept. 11, 2001, terror attacks wipe out trading portfolios and send companies into bankruptcy and oblivion. They've also had their faith shaken by scandals at companies including Enron Corp. and WorldCom Inc.

Yet while it's an accomplishment that the Dow has managed to come back -- it had sunk to a five-year closing low of 7,286.27 on Oct. 9, 2002, nearly 38 percent off its record high close -- Wall Street is far from completely recovered.

The Dow, whose well-known large-cap stocks include aluminum producer Alcoa Inc., discount retailer Wal-Mart Stores Inc. and the Walt Disney Co., rebounded well 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 10 percent away from that milestone. The Nasdaq is even further off its highs and no one expects it to reach its record of 5,048.62 any time soon.

Still, there is plenty of optimism on Wall Street, fed 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 increases.

It was the plunging price of oil, which closed at $58.68 on the New York Mercantile Exchange Tuesday, that put the Dow over the top. Oil's surge past $78 earlier this year raised great concern on Wall Street about the impact that higher fuel prices -- and the Fed's use of higher rates to combat inflation -- would have on corporate profits.

The market's concern now is whether the Fed might have slowed the economy too much with its 17 straight rate hikes starting in June 2004. So Wall Street faces some big tests in the coming weeks: third-quarter earnings reports, and any economic data that might point to a stumbling economy.