Dow (^DJI) 17,000 is upon us, like it or not. Despite the big round number, with a 3.25% gain for the year the Dow Jones Industrial Average is still lagging the S&P 500 (^GSPC) and Nasdaq (^IXIC). Regardless, it remains America’s go-to measure of markets. As surely as you're still nursing a hot dog and beer induced hangover this morning, so to will the Dow’s official surmounting of 17k be followed by extended, often heated conversations about whether or not stocks “should” be in year six of the financial meltdown rather than at record highs.
You’d think 108 years of history would have taught investors that words like “should” have nothing to do with investing, but we simply can’t help ourselves. Something about the stock market being at record highs just rubs Americans the wrong way.
“It’s like (the records) are violating our moral principles,” says Envestnet’s Zachary Karabell in the attached clip. “There’s clearly a lot of money that has been mis-allocated on the firm conviction that markets shouldn’t and wouldn’t go this high.”
Part of the reason so many pundits and investors take exception to market levels is rooted in straight forward professional self-interest. If you’re getting paid millions to allocate funds it’s not sufficient to simply admit defeat. There has to be an explanation for underperformance and “I’m not very good at managing money” won’t suffice. As reported last week almost 75% of professional investors are getting beaten by the market. That makes for some bitter, judgmental talking heads.
Leaving the industry aside, individual investors are up against something deeper. There are obvious evolutionary advantages to being instinctively given to avoiding repeated painful events. The financial meltdown of 2008 and the internet bubble that exploded in 2000 didn’t just take a bite out of Americans’ portfolios. It left them spiritually crushed as well. For many, the most salient takeaway from the last decade has been that the stock market is indeed fixed against the Main Street to the benefit of insiders.
“A lot of individuals who got really burned have said ‘I’m done,’” notes Karabell. It took decades to restore investor trust after the 1929 crash. Even in 1982 when stocks bottomed after nearly 15 years of struggling, most Americans were unconvinced. When the 1987 crash happened it confirmed lingering doubts to the point that October of 1987 is still mentioned in hush tones despite the fact that it was a one day event in the context of not just a bull market but a flat year in 1987 itself.
The crash of '87 saw a 22.6% drop that brought the Dow down to 1,750. The experience has been enough to keep some investors on the sidelines watching the Dow increase by 9.7 times. Stocks are haunted by bear markets of the past and it will always be so. A little skepticism is healthy but anger isn’t.
Big round numbers like Dow 17,000 have no fundamental importance, but they do offer sort of an emotional rest stop. Maybe it’s time for Americans not to so much forgive Wall Street but at least remind themselves that stocks aren’t house pets or even plants. “Should” isn’t a factor. Stocks are worth whatever buyers will pay and right now that adds up to about Dow 17,000. How that makes you feel is your own business.
- Dow Jones Industrial Average