What’s in a number anyway? That may be the question stock-market investors pose as the Dow Jones Industrial Average inches closer to the psychological milestone of 20,000.
sold off on Wednesday as the Federal Open Market Committee raised rates for the first time in 12 months and communicated that future hikes would come at a faster pace than had previously been expected. Still, the Dow was still just about 200 points shy of spanning the 1,000-point distance since it reached 19,000 on Nov. 22, which would mark the fastest such ascent for the gauge in its history.
But, is the rise for the Dow really that significant? Some critics point out the benchmark only represents a smattering (30 in total) of the thousands of stocks that make up the broader equity market. Moreover, outsize moves in any one of its components, because the gauge is price weighted, can have big effect on the Dow. Notably, the surge in shares of Goldman Sachs
which has benefited from expectations of looser Wall Street regulation and higher interest rates, has contributed about one-third of the Dow’s recent 1,000 point move since hitting 19,000 back on Nov. 22.
Read: Peter Schiff sheds no tears as a Trump rally hammers gold, Dow nears 20,000
Also worth point out is that 1,000-point moves for the Dow aren’t what they used to be. In other words, when the Dow struggled and finally doubled from 1,000 to 2,000 in 1987 that move represented a 100% advance, but a climb to 20,000 from 19,000 represents a comparatively pedestrian 5% rise (as the chart included in this article shows). Of course, those returns highlight the silliness of keying in on arbitrary milestones and the law of diminishing returns as it relates to 1,000-point advances.
Only. don’t tell that to some market watchers.
The 120-year-old stock-market gauge holds a special place in the hearts of Wall Street investors. Here are some of their views as the 20,000 milestone approaches:
Along those lines some market participants think that pushing through milestones confirm and extend ongoing trends:
Part of the rally for the Dow, which coincides with record moves in the SP 500 index
and the Nasdaq Composite Index
is on the back of hopes, as Colas highlights, that President-elect Donald Trump will deliver on promises to increase fiscal spending, reduce corporate taxes and dial down regulations that Wall Street views as debilitating to economic growth.
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