Dow hits 12,000 but then falls back

The Dow Jones industrial average breached the 12,000 mark for the first time Wednesday, and local and national consumer prices showed significant declines last month — all due in part to lower energy prices, 14 consecutive quarters of double-digit corporate earnings increases and stable interest rates.

The Dow briefly reached 12,049.51 — more than seven years after it hit 11,000 — before ending the day up 42.66 at 11,992.68. And if one Utah analyst proves correct, Wednesday's milestone is just another step toward even greater heights.

"The economy looks strong on all fronts," said Sterling K. Jenson, regional managing director for Wells Capital Management.

"Inflation is well-contained, the economy continues to purr along at 3 percent-plus growth, and we see the Federal Reserve on hold — we think the next move will be an easing (of interest rates) — and that bodes well for the stock market."

Wells Fargo Bank reported Wednesday that consumer prices along the Wasatch Front declined 0.9 percent in September, thanks to a 5.8 percent decrease in transportation costs. The cost of groceries locally fell 0.1 percent, which was balanced by a 0.1 increase in housing costs. Clothing prices rose 2.7 percent. All other cost categories monitored by the bank remained unchanged.

Nationally, the U.S. Labor Department reported that its Consumer Price Index fell by 0.5 percent last month, the biggest decline since November 2005. Core inflation, which excludes energy and food, inched ahead 0.2 percent.

"We are in the midst of a near picture-perfect soft-landing," said Bernard Baumohl, head of the Economic Outlook Group, a New Jersey forecasting firm.

Like Jenson, Baumohl said the Fed, which raised rates 17 consecutive times before taking a pause in August and September, should remain on hold for the rest of this year and well into 2007.

If that happens, and if energy prices and inflation remain controlled, Jenson said the markets will push even higher.

"We think that through year's end, the markets will digest this move to 12,000 on the Dow, and we could probably see it move to 12,500 and maybe even toward 13,000," Jenson said. "But over the course of the next year we still see corporate earnings continuing at a level that would suggest that this stock market, we feel, at least over the next 12 months, has another 15 percent upside potential from where we are currently at. Which would take the Dow up to 13,500 to 14,000."