Wow! 20K Dow
Will stocks remain bullish? Q&A offers some perspective
The Dow Jones industrial average crossed the 20,000 mark for the first time Wednesday, the latest milestone in a record-setting drive for the stock market.
Here are some answers to common questions people have about the stock market:.
Q. Can the stock market keep going higher?
A. The Dow has more than tripled from its low point during the recession seven years ago. Some experts have been surprised the market has continued to rise so much in recent months, particularly since corporate profits have been mostly shrinking over the past year and a half, but that doesn’t mean the market can’t go any higher. The market is now in the second-longest bull run since World War II, following the rally of 1990-2002.
The election of Donald Trump in November has made investors more optimistic about growth in the economy and the profit potential for industries such as banking and energy, which are expected to benefit from his drive to roll back regulations, lower taxes and rev up economic growth.
Q. If the market keeps setting record highs, does that mean stocks are getting expensive?
A. By some measures, yes. The long drive up in the market has sent a key barometer of how expensive stocks are above its long-term average.
A stock’s price is meant to reflect how much investors expect a company to earn in profits. If those profits grow, you’d expect the stock to rise. Sometimes, though, stock prices rise even if earnings don’t and that’s when stocks start to look expensive relative to their historical norms.
Q. How is the Dow Jones industrial average doing relative to the rest of the market?
A. Not bad, but some other parts of the market are doing even better.
Small-company stocks and transportation stocks have had even bigger gains than the Dow has. The Russell 2000 of smaller stocks is up an astounding 38.6 percent over the past 12 months, versus 26.3 percent for the Dow.
Investors have been flocking to small-company stocks partly because they expect them to benefit more than large multinationals from a pickup in U.S. economic growth, and the lower taxes and deregulatory drive that President Trump is promising.
Other parts of the market are also up, but not as much as the Dow. The Standard & Poor’s 500 index has also been setting records, as has the Nasdaq composite, which is heavily weighted with technology and pharmaceutical companies. The S&P 500 is up 22.4 percent over the past year and the Nasdaq composite is up 25.2 percent.