The Dow Jones Industrial Average (DJIA), or simply the Dow, hit a historical high of 30,000 points last week. While the number is a psychological barrier at best, the most important point of this milestone is how rapidly the blue-chip index has recovered from March lows, going on a run of over 60% in 2020. Dow 30,000 was greeted warmly by the market and even became the topic of a presidential announcement. We'll look at the significance of Dow 30,000 and what it means for investors.
- The Dow is hitting highs as the pandemic persists, which shows that there is an amazing amount of resilience in this market.
- The Dow is less relevant than competing indices pulling in a broader swath of the market, but it still holds a special place as one of the first.
- The Dow will likely cross the 30,000 barrier several times in the months ahead as market confidence meets ongoing pandemic challenges.
The Dow's 124-Year March to 30,000
On May 26, 1896, Charles Dow published his market average for the first time. The original Dow Jones Industrial Average only included the top 12 industrial stocks at the time and was 40.94 when it was first published. The Dow hit 100 in 1906 and took all the way until the 1970s to hit 1,000 (1972 to be exact). After taking over 60 years to reach 1,000 for the first time, the Dow took just over 14 to reach 2,000 (1987). In fact, the bull run starting in 1982 saw the Dow fly from the 700s to just over 2,600 before the 1987 crash derailed it. (It fell below 1,000 in the 1970s in part due to general stagflation.)
In 1991, the Dow officially passed 3,000, and it closed above 6,000 on Oct. 14, 1996 – this time doubling took just over five years. The '90s saw the Dow all the way to 11,000 on May 3, 1999, but the average wouldn't break 12,000 until October 2006. Thanks largely to a housing meltdown and a Great Recession, the Dow took until 2017 – or 11 years – to double again, hitting 24,000 in November. Then, here we are, a mere three years from 24,000, celebrating Dow 30,000.
The Inertia of Large Numbers
We are playing fast and loose with the Dow milestones above. Reporting the milestone closes obscures the fact that the Dow went back – sometimes way back – below those close figures at times before clearing the next milestone. Arguably, the most important figures are the times to doubling, but even these are fleeting moments that mostly cluster around bull markets.
The fact is that the Dow is a large number and has been since the '80s. The Dow moving from 100 to 1,000, for example, is a larger magnitude of a move (10 times) than from 10,000 to 20,000 (two times). Looking at tenfold increases as opposed to doubling shows that the Dow took 66 years to go from 100 to 1,000, and just 27 years to go from 1,000 to 10,000 (1999). This definitely shows an acceleration, but it is somewhat unlikely that we will see another tenfold increase in that compressed timeline, as it took two incredible bull markets in the '80s and '90s to make it happen.
What the Dow does have going for it now is the inertia of large numbers. A jump of 1,000 points is not nearly as much of a challenge for the Dow as it was in the 1896 through 1990 period because 1,000 points represents a smaller percentage increase as the Dow continues to grow. That said, this recent run-up in the Dow is still incredible given the challenging economic times it powered through.
A Question of Relevance
When you look at a listing of the component stocks making up the Dow, there are some obvious gaps – Alphabet Inc. (GOOGL), for one. The S&P 500 is, for most investors, likely a better index of the market and a better measure of the economy.
The Dow has some quirks, including how its price-weighting affects the movements of the index. As an economic bellwether, however, the Dow still holds up because the large component companies do well when the economy does well and suffer when the economy suffers. For most investors, the recent milestone for the Dow is just a sign that the recovery has some resilience in it.
The Bottom Line
Part of the Dow hitting a high was driven by broad market optimism around vaccines, stimulus, and Janet Yellen being named Treasury secretary. These are all seen as positive developments by the market, adding to resilience in the face of new lockdowns and rising COVID case counts.
However, like previous Dow milestones, the index can and likely will slide back and forth across 30,000 a number of times. Remember, the Dow was down below 20,000 as recently as this past March. So the milestone is fun to report and makes for a good headline, but it isn't going to change your investment outlook any more than the Dow closing at 29,921 at the end of last week did.