Can The Dow Jones Industrial Average Advance Beyond the 13,000 Level?

The Dow Jones Industrial Average has come a long way since the dark days of 2009. Back then, the index was below 7,000. Recovering to a nice, round 10,000 seemed a long way off, and getting back to 13,000 or 14,000 seemed impossible. Now, stability seems to have returned to the market. The Dow is up more than 80% since its lowest point back in March of 2009. Next, we'll have to see whether or not the index can keep climbing back toward (and beyond) the highs of 2007 and 2008. Despite the recent advances of the market, I believe that it will be hard for the upward momentum to continue. Five major factors contribute to my doubts about the continued growth of the index. Lack of Catalysts To keep accelerating, the market needs at least one catalyst, probably more. And there don't appear to be any on the horizon. So far, first quarter earnings have been a mixed bag; some companies are outperforming and others are underperforming. Companies like Intel INTC and General Electric GE, for example, reported better than expected numbers, while major players like Google GOOG and Bank of America BAC disappointed analysts' expectations. The rosy returns from 2010 will be hard to duplicate in 2011. No Economic Stimulus Whether you liked the $800 billion stimulus plan or you thought it was a complete waste of money, the effect on the economy was evident. The stimulus provided an injection of capital in the economy. But now there's no governmental stimulus plan or jobs program to give the market another shot in the arm. Most of Congress's proposals are about reducing federal spending, which may help balance the budget, but won't provide any jolt that promotes economic growth. Federal Reserve Tightening The Federal Reserve got active and helped boost the market by providing lots of money and guarantees for loans. Unfortunately, the Fed will end its buyback of Treasuries at the end of next quarter, removing $600 billion of liquidity from the market. The Treasury has been propping up the mortgage market and lending with its easy money policy. Now the Fed is expected to begin tightening by raising interest rates and restricting capital, which will have a negative effect on economic growth. High Unemployment Unemployment is the 800-pound elephant in the room. It's one of the biggest factors in domestic growth. Though the unemployment rate is dropping, at 8.8% it's too high to inspire confidence. Higher employment would lead to greater growth in the employment sector, which would help drive corporate earnings higher. Until the rate improves, the market won't reach any new heights. Uncertainty Uncertainty means volatility. And with an economic future that still looks unstable, retail investors will remain fearful. With the national debt still rising and threatening to breach the debt ceiling, the nation's credit rating is in jeopardy. Rising commodity prices, inevitable effects of inflation, and Congressional inaction are creating an environment in which uncertainty will hold the market back. Final Thoughts Improvement in just one of these five areas might help, but especially with all of these indicators facing trouble, it's difficult to predict continued improvement in the market. Struggles are in store. After a solid run for the past two years, the market is due for a pause in growth. It's a natural step in the process, and without a new catalyst to keep things moving up, you should get ready for another dip in the Dow. Mark Riddix runs his company, New Horizons Financial Management, and writes about personal finance and investing topics on MoneyCrashers.com, one of the top personal finance blogs online. He also writes a weekly column for Benzinga every Wednesday.