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Dow, S&P 500 hit records before closing lower

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The stock market broke through two milestones Monday before giving up nearly all its gains late in the day.

Stocks rose from the opening bell, lifting the Dow Jones industrial average above 16,000 for the first time and the Standard & Poor's 500 index past 1,800, two big markers in a historic bull market. But by the end of day, both indexes had fallen below those levels.

"The market is always a little hesitant when it gets to round numbers," says Ed Cowart, managing director at Eagle Asset Management. "You don't want to be the first guy buying at 16,000 on the Dow."

The Dow managed to eke out a gain over Friday's close with a late push higher, ending just 24 points shy of 16,000. Both the Dow and the S&P 500 are on track for their best year in a decade and have soared more than 140 percent since bottoming out in the Great Recession more than four years ago.

Investors have pushed stocks up sharply this year as the U.S. economy improves, companies report record profits and the Federal Reserve keeps up its easy-money policies.

"The Fed is still pumping money into the system, which is helping fuel the market," says Frank Fantozzi, CEO of Planned Financial Services, a wealth manager. "There's much more confidence in the market."

The Dow has risen for six weeks straight and is up 22 percent so far this year. The market hasn't risen that much in a whole year since 2003.

The Dow has closed above round-number milestones two times this year: 14,000 in early February and 15,000 in early May. The quick climb has led some experts to wonder whether stocks are too high and set to tumble.

Brad McMillan, chief investment officer for Commonwealth Financial, says he's not worried yet, but notes three ingredients of market froth are already present: investors borrowing record amounts to buy stock, more companies going public for the first time and Main Street investors putting money into the market after years of pulling out.

"Greed is taking over from fear," McMillan says.

It's not clear whether stocks have become expensive yet or are just fairly priced. One measure of value, the ratio of stock prices to forecast earnings, is at 15 for S&P 500 companies. That is slightly below the 15-year average of 16.2, according to FactSet, a data provider.

Including this year's gains, the S&P 500 is up 165 percent from the start of the current bull market in March 2009, 56 months ago.

Bull markets dating back to the Great Depression have averaged 57 months, according to S&P Capital IQ, a research firm, however the duration of bull markets has varied greatly over time. The bull market of the 1990s lasted 113 months, for instance.

Investors have been betting that Fed stimulus policies are not likely to change soon. Janet Yellen, the nominee to succeed Ben Bernanke as Fed chairman, indicated in congressional testimony last week that she was prepared to keep interest rates low to help the economy.

Investors were also encouraged by a Chinese government announcement late Friday that it plans to open state industries to greater competition and allow more foreign investment. Many big U.S. companies have come to rely on emerging markets like China to boost revenue. About half of the revenue in the S&P 500 comes outside the U.S.

The S&P 500 closed down 6.65 points, or 0.4 percent, at 1,791.53. The Dow rose 14.32 points, or 0.09 percent, to 15,976.02.

The NASDAQ composite fell 36.90 points, or 0.9 percent, to 3,949.07.

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