- The Dow Hits 11,000 - But Hold the Champagne

On April 12 the Dow Jones Industrial Average closed at 11,006, its first landing above 11,000 since Sept. 26, 2008. Many investors broke out the champagne. Others have stuck to bottled water, wishing to remain clear-headed as the market teeters on the edge of what could be either continued growth or a sobering correction. Either way, market volatility is not a thing of the past. Many hurdles lie ahead - here are a few.

U.S. corporate earnings season is here. Analysts predict most companies will meet but not exceed earnings expectations, and uninspiring results could lead to a short-term pullback in equities.

90-day realized volatility-over-time of the DJIA index generated using the RiskAPI Add-In.

Monetary policy remains unclear. If Federal Reserve Chairman Ben Bernanke indicates that the Fed may increase the federal funds rate, a market sell-off may result. If, as many believe, the market as been supported by government stimulus, investors may back off as the stimulus runs its course.

Other domestic markets provide indicators. The 10-year Treasury recently reached a 4% yield, indicating to many that that the recovery is built on borrowed money. Higher interest rates may be down the road, slowing U.S. economic growth.

Global markets are active. Continued fiscal unrest within the European Union may hamper the growth of U.S. equities. At the same time, many believe that prior to corporate earnings season U.S. markets became overpriced and are due for a correction while Chinese, European, and Latin American markets are still underpriced. Investor cash invariably flows to where the bargains are and in the months ahead that may no longer be stateside.

The dollar is weak, which is conducive to strength in overseas markets. It could be especially bullish for global equities if the dollar continues to slip against a basket of currencies such as the euro and pound.

Money growth has fallen sharply in the past six months in the United States, Western Europe, Australia, Mexico, and even in eastern European countries like Hungary and the Czech Republic. The decline in money growth has been spurred by banks' reluctance to lend, and could be the early sign of a slowdown in GDP growth over the next two years.

Recent statistics of major U.S. equity indexes generated using the RiskAPI Add-In.

Everyone agrees that the Dow at 11,000 is much better than the Dow at 8,000. But investing is always relative. Just because the market looks good today doesn't mean that there will not be dangerous volatility tomorrow, or that investors will look for even greener pastures elsewhere.

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