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Dow Closes Above 12,000 Mark Amid Troubled Housing Market

By Vikas Bajaj
THE NEW YORK TIMES

The Dow Jones industrial average closed above the 12,000 mark for the first time on Thursday, but looking ahead, the stock market’s performance in the coming year will largely hinge on how gracefully the economy handles the troubled housing market.

The Dow, a well-known though not comprehensive market barometer, squeaked by 12,000 after two weeks of strong gains, indicating that investors are increasingly confident that the economy is poised to perform the relatively rare feat of slowing without stalling. The Standard & Poor’s 500 stock index, a broader measure of the market, has also done well and is up 9.5 percent for the year.

The Dow industrials closed up 19.05 points on Thursday, to 12,011.73; the S&P 500 advanced 1 point, to 1,366.96; the technology-focused Nasdaq composite index gained 3.79 points, closing at 2,340.94; and the Russell 2000 index of smaller-capitalization companies rose 3.98 points, to 767.39.

The yield on the 10-year Treasury note, which moves in the opposite direction of its price, rose to 4.79 percent from 4.76 percent.

“It is the best of both worlds here,” said Steven M. Roge, a portfolio manager at the Roge Partners Fund. “We have interest rates that are still below the long-term average, capital is still flowing freely and growth is strong but not excessive.”

But doubters say that may be too sanguine a view. Atop the list of concerns is the softening housing market and its direct and indirect effects on the economy. In addition to job losses in construction, finance and related fields, falling home sales and prices threaten to dampen consumer spending, which has been energized by low-cost mortgages and home equity loans.

“I am a little nervous that there is too much complacency,” said Liz Ann Sonders, chief investment strategist for Charles Schwab & Co. “An overall economic soft landing is what is priced into the market. Believe me, I would love to get one, but soft landings are pretty hard to come by.”

Other concerns include tensions in the Middle East and on the Korean peninsula. Those and other geopolitical matters could easily reverse the slide in oil and gasoline prices that started in August and helped lift consumers’ spirits and their spending in the last month.

The recent run-up in the market has favored large stocks, fattening the Dow, a dollar-weighted index of 30 blue-chip companies. Among Dow components, the technology giants Intel and Microsoft, which lagged early in the year, have had a good run.

But some stock pickers see that strength as a worrying signal that large-company stocks may have become too expensive, at least for the time being. They note that when measured against earnings, the price of larger stocks is now higher than that of the S&P 500 as a whole.

More bullish investors say that many such concerns are hypothetical. In their view, stocks are fairly priced based on still-strong earnings reports and forecasts. The price-to-earnings ratios of stocks — 17.8 for the S&P 500 and 22.5 for the Dow, according to Bloomberg News — are close to historical averages and far below the lofty levels of early 2000 in the technology boom.