Rally Cap?

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Dingdingdingdingding! The rally that has swept Wall Street since Sept. 11 — or least since Sept. 21, which is plenty remarkable enough — reached a pair of very nineties technical milestones Wednesday, with the Dow passing 10,000 and the NASDAQ cracking 2,000.

Optimism is everywhere — about the recession being short and not too bitter, about tech stocks leading the way back to profits, about the war in Afghanistan, about the economic stimulus package. Even about Enron — up 26 cents to $1.16 — which may actually live to trade weather futures another day with the help of its self-interested rescuers at J.P. Morgan Chase.

The question is, are 10,000 and 2,000 new floors or old ceilings? Wednesday's steady bell-to-bell rally, which left the Dow up another 220 points to 10,114 and the NASADAQ up 83 points to 2046, was impressive in that it wasn't tied to any earth-shattering piece of good news. Well, there was the National Association of Purchasing Management's report on the services sector — 80 percent of GDP — which showed a spike in the NAPM index to 51.3 in November from 40.6 in October. And a bunch of analysts said — surprise! — good things about some tech bellwethers.

But the markets, faced with a Dow 10,000 they'd treated like a warning light all through mid-November, could have heeded, for instance, the Challenger, Gray & Christmas report that job cuts just since Sept. 11 were about to surpass the total for all of 2000. They could have gotten depressed thinking about those three U.S. friendly-fire casualties, or the latest suicide bombing in Jerusalem — or even the fact that those tech-pumping analysts are not exactly the most credible of voices, considering the stake financial services firms have in a lively, upturned market.

But they didn't. This market is not only rallying on good news, it seems to be rallying on the good news of its own rally. Which is not the strongest foundation for a bull to stand on. Yes, the recovery will come. Recoveries always come eventually, just like recessions always come eventually, and we'll probably catch some glimpse of it, at least anecdotally, by spring. That doesn't mean it will be the recovery that Wall Street has clearly begun to envision: business-led, consumer-financed and — most importantly — right around the corner.

Tough demands by fickle investors, which is why some on Wall Street are beginning to wonder if the indexes aren't now going to develop a fear of heights now that they've gotten off on a floor the Dow hasn't seen since Sept. 5 and the NASDAQ since Aug. 7. Expect some profit-taking Thursday, for starters. And Friday, the Wall Street that may be starting to take consumer spending for granted will have to endure another (likely garish) rise in the unemployment rate for November — a number which, despite its irrelevance to actual economic progress, can scare the heck out of consumers and has sparked one or two Friday panic-sells in its time. (Like Sept. 7, for instance.)

And then there's the Fed, which Wednesday celebrated the 5-year anniversary of Alan Greenspan's famous (if overestimated in terms of impact) speech about "irrational exuberance." If Big Al decides his days of "pushing on a string" and throwing half-point cuts at a recalcitrant economy are over, Wall Street might not take it so well.

This rally isn't completely exuberant; too many Street people are knocking on wood for that. Nor is it completely irrational — the recovery, after all, is coming, and Wall Street's predictions can be self-fulfilling. So call it rational optimism — a very fragile optimism, based on a recovery that, as yet, doesn't really exist in any form, much less the form that this rally seems to demand.

And keep knocking on wood.