STRONG STOCK MARKET CONTINUES TO EDGE UPWARD

The Dow Jones industrial average isn't what it used to be.

Exponential growth of the benchmark stock average, dramatic day-to-day volitility and the weening out of traditional industry from the "industrial average" have made it a vastly different indicator since its inception in 1896.

But one point that equity experts generally agree on is a continued rise in the Dow, given enough time, although no one will say how much is needed.

"If you look at the numbers, you'll see that it has gone up 11 percent in the past 50 years," said Michael Devaney, finance professor at Southeast Missouri State University. "If you compound that over a number of years, you'll get a 36,000 Dow."

"Dow 36,000" is the title of a book published last year, with the premise that the natural level for the Dow to achieve is 36,000.

That's huge considering that the Dow, based on price movements of 30 large U.S. companies, is hovering around 11,000 now. But certified financial planner Philip Dame of Cape Girardeau calculates that the Dow has already doubled its value three times in the past 15 years.

Dame considers the Dow's recent rapid growth fundamentally sound, based on price/earnings ratios for Dow companies. These ratios are equal to a stock's capitalization cost divided by after-tax earnings. A good ratio in a growing bull market would be 25, Dame said. The average for the Dow's 30 companies exceeds that ratio now, he said.

But there is a wide variance in value among Dow companies. Longtime bluechip General Motors capitalization is large at $57.4 billion, while highflying Cisco Systems, which has handled everything Internet since 1986, is at $447.9 billion. This California-based Internet company has one of the largest capitalization figures in the world.

Dame is skeptical of such figures. He said this value is being bid up by enthusiastic investors.

"Is Cisco that much better for future earnings than GM?" Dame said. "I doubt it."

When considering the value of technology companies, the price/earnings ratio is a deceptive indicator, Devaney said. Their stock's popularity and quick growth demonstrate a fundamental change in investors' thinking, he said.

"The value of stocks has been based on earnings historically," the professor said. "But with these, it has changed to revenue growth."

Stock buyers are anticipating these new companies' worth, based on potential revenue in the future, finanacial advisors say.

Devaney considers this a dangerous idea.

"People are projecting profits for these technology companies three to five years out in the future," Dame said. "But some of them won't be around then."

Several explanations exist for the Dow's rise, Devaney said. The economy has moved froma focus on manufacturing to service businesses. This change started before the wave of technology start-ups swept in.

This is evidenced by the changing makeup of the Dow, Dame said. Among the 30 "industrial" companies in the Dow are Wal-Mart, American Express, Home Depot and Disney.

"It's not a smoke stack industry index anymore," Dame said.

Another idea accounting for Dow growth is a "peace dividend" with the Cold War's end, Devaney said. Increasing globalization has made for more stable politics, followed by economics.

But the absence of inflationary pressures is one of the biggest reasons Devaney cites for the stock market's upswing. He suggested a possible reason to explain this is competition holding prices down.

As the United States recently achieved an milestone with its longest period of economic growth uninterrupted by recession, Dame said people have to remember that it can't last forever.

"The Dow will keep going up within reason, relative to the curve we've been on," he said. "But the market can't grow expontentially to our economy."

Many active stock brokers and financial advisors have never seen a severe economic downturn, Devaney said, which could make conditions worse when recession finally comes.