Key Takeaways

  • The Dow Jones Industrial Average topped 30,000 for the first time
  • Investors have been betting on a recovery rally due to positive vaccine news
  • The DJIA rallied more than 60% this year from its March lows

In a recovery rally that has defied a global health pandemic and a nasty recession, the Dow Jones Industrial Average topped 30,000 for the first time as investors bet on a strong economic recovery. The milestone is even more significant given the depths of the stock market's plunge in late March of 2020. Since the lows of March 24, the Dow has rallied more than 60%, climbing from nearly 19,000, all the way through 30,000, in just eight months.

DJIA Year-to-date 2020
DJIA Year-to-date 2020.

Fed Abetted

Investors have been leaning into equities since mid-April when the Federal Reserve announced that it would keep interest rates at current levels until at least 2023, in addition to other monetary policy measures. Still, many institutional investors were hiding mostly in cash, gold and government bonds through early November. The stock market's rise during that period was mostly on the backs of the mega-cap technology and internet stocks, as well as the stay-at-home stocks that benefitted from the pandemic.

But in the last few weeks, those investors reversed course, plowing record amounts of money into global equities, particularly in the U.S. and emerging markets. Positive vaccine news from Pfizer, AstraZeneca, Moderna, and others has ignited a recovery rally that has lifted Dow components like Home Depot to record highs, while several beaten-down energy and transportation stocks have risen 20% or more.

Uncertainty Evaporates

While investors were justifiably anxious about the U.S. presidential election results, by November 4, they had mostly made up their mind that Joe Biden would be the next president, and he would face a divided Congress for the next four years. He would also usher in heavy government spending to combat the pandemic and issue more relief to struggling Americans and small businesses. Equity markets have responded well to divided governments and heavy spending over the past 40 years, so the ingredients for a strong stock market are well proven.

On November 23, the Trump administration agreed to begin the transition of resources to the incoming Biden administration, after casting doubts on the election results and lobbying legal challenges to overturn it. The change in tune unleashed more buying by investors now that the election uncertainty may be officially over.

The Dow Components Behind the Charge to 30,000

Today's DJIA looks different than it did a decade or two ago, given the addition of mega-caps like Apple(AAPL), Microsoft(MSFT) and Salesforce(CRM), and the subtraction of energy companies like Exxon-Mobil(XOM). Those widely held tech and tech-adjacent behemoths have helped power the index higher since it crossed 20,000 for the first time on January 25, 2017. But other stocks, including Nike(NKE), Home Depot(HD), and Visa(V), have also contributed to the index's rise, while making enormous gains since the 20,000 threshold was first crossed.

Dow component gains since 1/25/17
Dow component gains since 1/25/17.

While the Dow components have changed, and many of them don't represent the industrial sector as we knew it in the 20th century, the index is still a pretty strong representation of the American economy in 2020.