The DOW JONES INDUSTRIAL AVERAGE closed above 20,000 for the first time in history. On the surface, that is a very symbolic event and certainly worth celebrating. It’s a very cool thing. But realistically, the DOW is not reflective of the true US Stock Market. The DOW is just a price-weighted average of 30 mega cap stocks that don’t necessarily represent today’s overall Market. That role goes to the S&P 500, which is comprised of the largest 500 publicly traded US companies. The good news is the S&P hit a new, all-time high this week as well. So did the Tech heavy NASDAQ. This rally is finally broad based. That definitely matters.
But most people watch the DOW and track the DOW. You might be wondering how it all started. Well, in 1883, Charles Dow and Edward Jones, both journalists on Wall Street, created a daily newspaper called the Customers’ Afternoon Letter. It was a 2 page summary of the days Market news and activity. Over the years, the newspaper naturally grew and became the Wall Street Journal. Dow started tracking stock prices to show the readers whether the Market was rising or falling. In 1896, the DOW JONES INDUSTRIAL AVERAGE was officially born. It initially consisted of 12 industrial stocks. Its all-time low was hit that year at 28 points. In 1928, it increased to 30 stocks, which is where it remains today. But the stocks in the DOW have changed substantially over the years. Though General Electric is the only remaining original DOW component by name in the index, it was actually removed and added back in twice over the years. Today, Technology accounts for nearly a quarter of the DOW. It was less than 2% in 1999.
The DOW first reached 100 in 1906. The DOW rallied nearly 500% during the 1920’s, hitting 381 in 1929, before crashing. It fell down to 41 during the Depression in 1932, erasing 33 years of gains. Here are some other major milestones for the DOW’s history:
- It closed above 1,000 for the first time in 1972.
- It reached 5,000 in 1995.
- It more than doubled in 5 years as the dot.com bubble inflated the Stock Market.
- It first hit 10,000 in 1999.
- It fell back below 10,000 in the year 2000 and 2008, before its sustainable move higher.
It reached 15,000 in 2013. - And just this week, the 20,000 level was achieved on January 25, 2017.
- It’s up over 200% since the March 2009 lows from the Financial Crisis.
- It took the DOW over 100 years to reach 10,000. It took another 17 years to double to 20,000. The last 1,000 points took just 42 trading days to hit 20K.
History has proven that the Stock Market never moves in a straight line in perpetuity. All-time highs are a really good thing. But as we all know, that’s history. For us it’s all about where we’re headed. But understanding where we’ve been is a very helpful tool in anticipating where we’re going. As my favorite author and philosopher Mark Twain once said: “History doesn’t repeat itself but it often rhymes.”
Have a nice weekend. We are all over it. We’ll be back, dark and early on Monday.
Mike
