The Dow at 20,000
It took just over 2 months for stock gauge to climb from 19,000
After flirting with the elusive 20,000 mark for several weeks, the Dow Jones industrial average finally pierced through the milestone for the first time Wednesday, as investors remain buoyed by the sentiment that a pro-business agenda is taking hold in Washington, D.C., with the advent of the Trump administration.
In a historic moment on Wall Street, the Dow jumped 155.80 points, or 0.8%, to close at a record high 20,068.51 on Wednesday, and touched 20,082 during the day. Wednesday’s rally was broad, with the Standard & Poor’s 500 and the Nasdaq composite also closing at alltime highs.
It took the Dow, a stock gauge made up of 30 of America’s best-known blue-chip companies, just 64 calendar days to climb from 19,000 to 20,000, its second-fastest thousand-point sprint, according to S&P Dow Jones Indices. The climb from 10,000 to 11,000 in 1999 took 35 days.
“I still think a large segment of the financial community is missing the big
picture,” said Bruce Bittles, chief investment strategist for Milwaukee-based Robert W. Baird & Co. Inc. “The big picture is we’ve moved into a very pro-business environment.”
Additionally, corporate earnings are “beginning to do better, and that’s before tax cuts or any significant change in the regulatory environment,” he said.
Wednesday’s surge prompted economists to ponder the obvious question: Is the all-time record Dow due to irrational exuberance or justifiable optimism.
“A little bit of both — to answer like an economist,” said Sara Walker, senior vice president and investment officer of Green Baybased Associated Bank. “The sentiment measures are all very high. The earnings numbers have been increased, too. But investors seem very willing to pay high prices for those earnings . ... It is a milestone, and on the one hand it’s just a number. But on the other hand, there is some significance when you cross those lines.”
Economist and investment professional Brian Jacobsen put it this way: “Hitting round numbers with the major indexes can be as exciting as seeing your odometer hit 100,000 miles. It’s also just as significant. Ultimately, it’s just part of the journey.”
Jacobsen, who is chief portfolio strategist for Wells Fargo Funds Management in Menomonee Falls, said that statistically, there tends to be a slight increase in stock market volatility after hitting a milestone. However, simply due to the mathematics of growth, each milestone gets a little bit easier to cross, he said.
“We first passed 19,000 on Nov. 22. The push higher since then has likely been due to the decent economic data we’ve been seeing, the prospects of lower corporate taxes and that we’re in the early part of earnings season where those earnings have been looking pretty good,” Jacobsen said. “Even if we do see a pullback from here, I think Dow 20,000 will quickly give way to Dow 21,000, and we could see Dow 23,000 within the next year.”
Bittle stressed that the market is a forward-looking mechanism.
“It is adding all that up and saying, ‘Down the road, it looks much better in terms of the economy and corporate earnings.’ So, I think it’s certainly justified,” Bittles said.
Investors don’t want to miss out on the rally.
“It appears certainly that the path of least resistance is to the upside and if you’re fighting that I think you are fighting a losing battle for the time being, at least,” Bittles said. “There’s nothing more bullish than a sold-out bull ... The S&P 500 is up almost 3% for the month. Do you want to miss that? That’s what’s happening here.”
Plus, there aren’t too many other places to turn to achieve a decent return on investments. “Bond yields have come up some but there’s still not much competition for stocks,” Bittles said.
However, is the market’s bull run an example of the now-famous irrational exuberance that led up to the stock market’s tech bubble in the 1990s?
“As for rational or irrational exuberance, I would say that some tangible regulatory actions have added to the early optimism of a pro-business Trump administration,” said Michael Knetter, an economist and president of the University of Wisconsin Foundation. “Consumer confidence numbers are up. That and the prospect of more cooperative regulatory agencies can easily justify the market lift.” Not everything is rosy. “There are a million things to worry about, and there always are,” Bittles said. “The nation’s debt is so large. That acts like an anchor on the nation’s economy. I think that’s the largest problem we face . ... Servicing that debt, even at these low interest rates, saps a lot of energy out of the economy.”
And President Donald Trump’s bombastic posturing is cause for concern, Knetter said.
“We are seeing some evidence that the combative style that succeeded in the campaign is the same style that will be used to govern,” Knetter said. “Unfortunately, a president needs to elicit cooperation from others in Congress and across the world to lead the free world effectively.”