The Dow Jones Industrial Average broke through the long-awaited 20,000 level shortly after stocks opened for trading this morning. The Dow had pulled back in eight of the last 11 days. The 30-stock index is now up 11% since Donald Trump was elected president.
Lots of commentary this morning on why the Dow picked today for its break through.
But while we’re asking why and where from here, it’s a good day for remembering exactly how odd the Dow Jones Industrial Average is as an index. It consists of just 30 stocks (you can get a list here from Yahoo.com “>) and unlike most indexes that are weighted by market cap of member stocks, the Dow is weighted by share price. In other words, shares that sell for a higher price get more weighting in the index.
You can see why that might be important today when shares of Boeing (BA) at $167 are up 4.5%; Goldman Sachs (GS) at $236 are up 1%; 3M (MMM) at $178 is up 1%; and so on. That big share weighting is working in favor of the bullish trend this morning since the few decliners in the index trade at much lower per share prices. Wal-Mart (WMT), down 04%, sells for $67 a share and Verizon (VZ), down 0.5%, goes for $50 a share.
The bullish argument for the index–and the market as a whole (the Standard & Poor’s 500 is up 0.56% as of 11:45 a.m. in New York)–moving higher from here is that breaking 20,000 will bring new money into the market from those investors left behind in the post-election rally. (One comment I’ve heard is that people will open their monthly statements, ask How can I catch up?, and buy.) In evidence bullish analysts are noting that a net $77 billion was pulled out of mutual funds and ETFs that invest in U.S. stocks in 2016. As a gloss on that bullish thought, I’d like to note that late to the game money from individual investors moving into a rally has often been the sign that a rally is near a top.
However, I think most analysis that tries to pinpoint a reason for this rally is beside the point unless it looks at the enthusiasm on Wall Street and in corporate offices at the flood of proposals coming out of the Trump administration. What stock market wouldn’t cheer a big corporate tax cut, a 75% cut in regulation, a $1 trillion infrastructure package, etc.?
As the beginning of the year I wrote that Trumphoria would run into February or so when the administration has to try to reconcile its contradictory proposals and Congress starts to grind away at the details. I think that time table still stands.
In the meantime party on. But remember that someone has to stay sober to drive everyone else home.