Dow on verge of closing at an all-time high

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The Dow Jones Industrial Average is flirting with an all-time high after spending 6 1/2 years in the wilderness recovering from a bubble in technology stocks, a recession, terrorist attacks, a wave of corporate scandals, sharply higher energy costs and interest rates, and recently, worries about a housing bust.

The Dow has struggled to top the 11,723 level it reached in January 2000, with its recent treadmill action of advance and retreat typical of the solid but unglamorous gains it has been eking out for investors since the bubble burst in early 2000.

Yesterday's market action was in line with the trend. The Dow briefly topped its high, then pulled back to end 9 points lower at 11,670 on worries about a steep slowdown in manufacturing. The blue-chip Standard & Poor's 500 index also has soared to 5-year highs, but the technology-driven Nasdaq Composite Index stands at less than half the record high it hit in March 2000.

The last time the Dow visited these heights, few analysts questioned that the market would continue its swift upward march. But the long, tortuous path it has followed since then has fed chronic questions about the sustainability of market gains and produced a plethora of opinions about where the Dow is headed from here.

"The best is yet to come," said Jeffrey N. Kleintop, chief investment strategist at PNC Financial Services Group, predicting that the S&P 500 index will gain at least 14 percent in the next year as energy prices continue to recede, uncertainty about corporate earnings and control of Congress is resolved, and the Federal Reserve reverses its anti-inflation campaign and cuts interest rates.

Last month, the market got a "head start" on the "fourth-quarter fireworks" that Mr. Kleintop said he is expecting, in line with the usually robust market performance in the second year of a president's term.

"The stock market is entering what has historically been the best 12-month period for its performance during the four-year presidential election cycle," he said, citing many similarities to the midcycle years 1966 and 1986, during which the market experienced explosive gains.

Mike Ryan, head of UBS Wealth Management Research, said the dramatic drop in oil and gas prices since Labor Day -- which should boost economic growth and help tame inflation -- is largely responsible for the turnaround in the market and investor sentiment.

"Investors seem to believe the U.S. economy is headed towards a so-called soft landing," he said.

But Alexander P. Paris, stock strategist at Barrington Research Associates Inc., said the market is due for a "rest" because investors have exaggerated the benefits of a "surprise collapse in oil prices" while overlooking pitfalls.