10,000: How Now, Sound Dow?

As long as nobody looks down, things should be more than all right. In a day that saw the Dow surge over the 10,000 mark only to fall back, investors need to focus on what is driving the stock market, not its altitude. And that powerful engine is doing just fine, thank you. "The economy is sound and strong," says TIME senior economics reporter Bernard Baumohl. "Inflation remains under control, corporate profits are staying healthy, and consumers are still happy to spend. Even the world economic outlook is encouraging. Europe may be slowing slightly but both Asia and Latin America are stabilizing."

Right now, investors have mostly themselves to fear, says Baumohl. "The question is: Does a 10,000 Dow have such a psychological impact on people that they will become nervous and decide to cash in?" Recent history shows they have not been scared off in the past and, Baumohl believes, there is no reason to expect it will happen now. There is nothing magic, extravagant or spooky about the number 10,000 (it merely reflects what investors believe to be the correct stock valuations), and there is no fundamental reason why the Dow should not continue to climb to 11,000 without a major correction. "Stock market bubbles usually burst when errors are made in policy, not when investors show exuberance for stocks," says Baumohl. This is not one of those bubbles: U.S. economic policies are in place and the engine is humming nicely.