Wednesday, November 25, 2020
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Maybe not ‘sacred,’ but still important.
This record close at 30,046.24 comes just less than four years after the index closed above 20,000 for the first time. Nearly 18 years passed between the Dow’s first closes above 10,000 and 20,000.
And it might seem improbable that this milestone comes during a year in which a global pandemic rocked financial markets, tens of millions of jobs were lost in just a few months, the incumbent party lost the White House, and Americans took to the streets to protest racial injustice.
Regular readers of this newsletter will by now be well acquainted with many of the reasons stocks have looked past these challenges facing the country and the global economy right now. Positive vaccine news, Federal Reserve actions, anticipation of an economic rebound in 2021, and low interest rates are just parts of a story those steeped in the market’s daily movements will be familiar with.
None of these catalysts alone, of course, can explain why the market does what it does. But taken together, the idea congeals.
During an extremely brief statement on Tuesday, President Donald Trump said that 30,000 is a “sacred” number for the Dow. And while this is not a descriptor we’ve heard before in reference to the price of a stock market index, it is indeed significant for the Dow to eclipse 30,000 for the first time.
Because while investment professionals will tell you that the S&P 500 (^GSPC), the Russell 1000 (^RUI), or the Wilshire 5000 (^W5000) are better barometers of U.S. equity markets, the public knows the Dow.
Back in 2009, Pew Research asked Americans what they knew about the financial crisis that was rocking the economy at the time. And when it came to financial markets, Pew didn’t ask about the 10-year Treasury yield, the Fed Funds rate, or what the S&P 500 was doing. Pew asked about the level of the Dow.
As an index, the Dow isn’t perfect. And many investors would tell you the index is, in fact, fatally flawed.
The Dow is weighted by the per-share price of its members, not the market capitalization of the companies. Which, when you think about it, really makes no sense. The price of any company’s stock can be any price at any time and says nothing about the actual value of the business. The per-share price is just the result of some simple division.
As a result of this quirk, the Dow today is more impacted by a change in the share price of Goldman Sachs (GS) — which rose 3.95%, or $9.04 per share — than it is by a change in the price of Apple (AAPL) stock, which rose a more modest 1.16%, or $1.32, on Tuesday.
And while Goldman is, of course, a formidable investment bank and one of the financial industry’s defining brands, the company’s market cap is more than 95% smaller than Apple’s.
There also isn’t a whole lot of money indexed to the Dow. When you ask an investor if they’re “beating the market” almost no one will be benchmarking that performance to the Dow Jones Industrial Average.
The Dow is also comprised of just 30 companies instead of the 500 included in the S&P 500, collecting just a small fraction of the several thousand publicly-traded companies.
But let not these industry technicalities take away from the import of this milestone.
Dow 30,000 will make more people more aware of how the stock market is doing and will inform their view of how the economy is performing.
And for better or worse, that matters a lot more than some financial expert telling you to ignore it.
What to watch today
7:00 a.m. ET: MBA Mortgage Applications, week ended Nov. 20 (-0.3% during prior week)
8:30 a.m. ET: Initial Jobless Claims, week ended Nob. 21 (733,000 expected, 742,000 during prior week)
8:30 a.m. ET: Continuing Claims, week ended Nov. 14 (6.372 million during prior week)
8:30 a.m. ET: Advance Goods Trade Balance, October (-$79.9 billion expected, -$79.4 billion in September)
8:30 a.m. ET: Wholesale Inventories, month-over-month, October (1.6% in September)
8:30 a.m. ET: Retail Inventories, month-over-month, October (1.6% in September)
8:30 a.m. ET: GDP Annualized, quarter-over-quarter, 3Q second print (33.1% expected, 33.1% in advance print)
8:30 a.m. ET: Personal Consumption, quarter-over-quarter, 3Q second print (40.8% expected, 40.7% in advance print)
8:30 a.m. ET: GDP Price Index, 3Q second print (3.6% expected, 3.6% in advance print)
8:30 a.m. ET: Core Personal Consumption Expenditures, quarter-over-quarter, 3Q second print (3.5% expected, 3.5% in advance print)
8:30 a.m. ET: Durable Goods Orders, October preliminary (0.9% expected, 1.9% in September)
8:30 a.m. ET: Durable Goods Orders Excluding Transportation, October preliminary (0.4% expected, 0.9% in September)
8:30 a.m. ET: Non-defense Capital Goods Orders Excluding Aircraft, October preliminary (0.7% expected, 1.0% in September)
8:30 a.m. ET: Non-defense Capital Goods Shipments Excluding Aircraft, October preliminary (0.3% expected, 0.5% in September)
10: 00 a.m. ET: Personal Income, October (0.1% expected, 0.9% in September); Personal Spending, October (0.4% expected, 1.4% in September)
10: 00 a.m. ET: PCE Core Deflator, month-over-month, October (0.0% expected, 0.2% in September)
10: 00 a.m. ET: PCE Core Deflator, year-over-year, October (1.4% expected, 1.5% in September)
10: 00 a.m. ET: University of Michigan Sentiment, November final print (77.0 expected, 77.0 in preliminary print)
10: 00 a.m. ET: New Home Sales, month-over-month, October (1.7%. expected, -3.5% in September)
2:00 p.m. ET: FOMC Meeting Minutes, November meeting
6:04 a.m. ET: Deere & Co. (DE) in expected to report earnings of $1.49 per share on revenue of $7.68 billion
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