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Detroit Free Press Susan Tompor Column: GM Leads Stock Market Past 11,000 Mark

Posted on: Tuesday, 10 January 2006, 09:00 CST

By Susan Tompor, Detroit Free Press

Jan. 10--The Dow Jones industrial average surged above 11,000 for the first time in more than five years Monday, powered by General Motors Corp., of all things.

During the first five trading days of the new year, the Dow has gained 294.4 points -- or 2.7% in value.

GM shares have gained $2.99 or 15.4% in value.

That's more than any of the other 124 Michigan-based companies tracked by the Free Press that began the year at more than $2 a share. It's an astounding turnaround for a company that has had stock market wags so unhappy with its performance that they want it dumped from the 30 industrial stocks Dow uses to calculate its world-famous barometer of market performance.

"It's the No. 1 contributor today to the Dow," said David Sowerby, senior portfolio manager for the Bloomfield Hills investment firm of Loomis, Sayles & Co.

Sowerby noted that GM's gains accounted for roughly 13 points -- or a quarter -- of the Dow's 52.59-point gain to close at 11,011.90 on Monday.

GM closed at $22.41 a share -- up $1.61 or 7.74% for the day, boosted by a positive report by an analyst.

Overall, this is not a bad way to start off the New Year. Not at all.

Not at all -- especially when the Dow traded near 11,000 a few times in 2005 but fell short.

Not at all -- especially when stocks aren't just playthings for wealthy people anymore. Nearly half of U.S. households now own stock as more and more companies are freezing or eliminating pension plans, forcing individuals to invest in 401(k) plans for their retirement years.

Not at all -- especially when the first five trading days of any new year can be a pretty good forecast of the year ahead.

"If it's a good first five days, it'll usually determine the year, and vice versa," said Ed Eberle, president of Seizert Capital in Birmingham.

But don't bank on this being the start of one incredible go-go year for stocks.

"It's kind of unlikely that we're going to be seeing another big bull market," said James Glassman, senior economist for JPMorgan Chase & Co. in New York.

Mark Zandi, chief economist for Moody's Economy.com in West Chester, Pa., agrees.

"I don't think we should expect double-digit returns in '06, but I think stocks will return more than any other assets in '06," Zandi said.

He expects that stocks could do better than real estate, bonds or cash.

By itself, Zandi said the 11,000 mark means nothing.

"But it symbolizes that the stock market is back and that investors are expecting good, solid economic growth ahead."

Other stock market indexes are doing well, too. The Standard & Poor's 500 is up 3.4% so far this year. It closed at 1290.15 on Monday -- up 4.7 points.

GM still has its critics after shares fell 50% from its 2005 highs. But on Monday, GM got a boost from a report by Goldman Sachs & Co. analyst Robert Barry. While he told investors that GM still has many problems, Barry stressed that a Chapter 11 bankruptcy filing is "very unlikely anytime soon." His forecast noted that GM shares could rebound to the mid-$20 range in the first half of this year.

Barry also noted that in the near term, GM also might get a sentimental boost from GM's presentation at the Detroit auto show later this week.

"We expect that, at the very least, management will cast the most favorable light possible on GM's current operating situation," Barry said.

Also on Monday, GM investor Brandes Investment Partners LP said in a regulatory filing it has raised its stake to more than 10%. With 56.6 million shares, Brandes is now the third-largest GM stockholder, overtaking billionaire Kirk Kerkorian.

Sowerby noted that he's reassured that not just one thing has driven up stocks this year.

Several factors have contributed to this year's growth in the Dow and other stock indexes.

Many companies aren't issuing warnings of weaker earnings. Many market watchers expect the Fed to be nearly done raising rates. They're only forecasting one or two more quarter-point interest rate increases in 2006.

And Sowerby notes investors shouldn't forget that we just came off one very mediocre year -- a year when the Dow was down 0.6%. Other indexes were up modestly.

Liz Ann Sonders, chief investment strategist for Charles Schwab in New York, says she's a little concerned people could read too much into those 11,000 headlines. She conducted several interviews with the media, including the Free Press, Monday. And she's scheduled to appear this morning on "The Early Show" on CBS. The topic? The Dow 11,000.

All that media coverage, she said, makes her more nervous than euphoric.

Sonders is forecasting that stocks could see as much as a 10% gain in 2006.

But she warns: "It's not a barn burner."

Contact SUSAN TOMPOR at 313-222-8876 or stompor@freepress.com. Bloomberg contributed to this report.

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Source: Detroit Free Press

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