Round numbers have no special significance when it comes to the value of stocks. But it's another story when it comes to the psyche of investors.
The Dow Jones Industrial Average peaked at 14,165 on Oct. 9, 2007. Stocks drifted lower for a while until the fateful 2008 bank failures sent stocks plunging. The Dow bottomed out in March 2009—down 54 percent from the 2007 peak—and has been regaining lost ground ever since.
The Dow has since closed above 14,000 one time, on Feb. 1, 2013, when it ended the day at 14,010. But since then it has stayed below 14,000 for five days in a row. Some stock watchers think it could be a while before the Dow crests 14,000 and stays there. "Dow 14,000 has proven a challenging level to eclipse," Sam Stovall of S&P Capital IQ explained to investors recently. "Like a rusty door, these levels typically require several attempts before swinging open."
By that logic, there could be several more attempts at 14,000 that end in a frustrating retreat—and there are plenty of reasons for it to happen. The long run-up in stocks that began in 2009 finally seems to be luring skittish investors who have had their money parked in safe Treasury securities, or even in cash. This "Great Rotation" out of bonds and into stocks should ultimately be one factor that pushes stocks higher, since demand for stocks would go up.
But first, there could be a market correction as some traders take advantage of the higher prices to sell and lock in profits. To be crude, the smart money might be selling just as the dumb money decides to buy.
Other factors could weigh down stocks for the next few months. Renewed concerns about political instability in Europe recently pushed bond yields higher, which often sends stocks in the other direction. Many economists think the on-and-off European crisis has slowly been improving, but there's still a danger investors could get complacent and underestimate the depth of trouble.
The U.S. economy isn't out of the woods either, with more big budget battles coming soon in Washington. It's looking increasingly likely that government spending cuts of roughly $110 billion per year will kick in starting in March, as scheduled. That won't cause a recession, but it will slow growth and cut into corporate earnings, which will take some of the air out of stocks.
Most forecasters still think 2013 will be a good year for stocks, and 2014 a better one. They just think it will be bumpy for a while. "The market should continue to advance," Russ Koesterich of BlackRock wrote recently on the company's investing blog, "though volatility is likely to rise over the coming months."
Those types of concerns indicate the stock market may endure a bout of indigestion for the next couple of months, perhaps even a downturn that begins to look like a 10 percent correction. But it the economy continues to improve, the Dow will eventually hit 14,000 and start charging toward 15,000. The only question is how many false starts there will be before it happens in earnest.
Rick Newman's latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.