On Tuesday, October 3, 2006, the Dow Jones Industrial Average set a new record high – the first since January 14, 2000, more than six and one-half years ago.
In the United States, the Dow (as this 30-stock index is popularly known) is the arguably the most widely quoted stock-market index. However, many people, myself included, believe that it’s not the most accurate assessment of the condition of the U.S. economy. Other indices, such as Nasdaq, survey a much wider array of stocks, and use a better algorithm – and haven’t fared as well. The Nasdaq, for example, is at less than half the value it had in January 2000.
If we take a step back, however, it’s not all as doom-and-gloom as the stock prices would indicate. Back in early 2000, we were at the peak of a technology bubble. Prices were unnaturally high in those heady days, with price/earnings ratios that exhibit the irrational exuberance that U.S. Federal Research chairman Alan Greenspan warned about in 1996. He was right, and the market came crashing down… to where it belonged.
So, forget about the stock market, forget about the Dow Jones record. Look at the fundamentals: The computer industry has changed, and the software development industry has matured. Software is central to every aspect of corporate life, and thanks to Web portals like Amazon.com, YouTube and MySpace, it’s central to our personal life as well.
Yes, your stock options might still be underwater, and your retirement fund may not be back at its bubble values (mine certainly isn’t). However, take solace in the reality that our industry is growing at a reasonable pace, and a healthier one.