Dow at 20,000! What does it mean?

What’s in a number anyway? That may be the question stock-market investors pose as the Dow Jones Industrial Average inches closer to closing at the psychological milestone of 20,000.

The Dow DJIA, +0.83%  on Wednesday hit the 20,000 milestone within seconds of opening, bolstered by earnings and hope for economic growth under President Donald Trump’s administration, including a pickup in infrastructure spending a repeal of regulations and tax cuts.

The Dow first closed above 19,000 on Nov. 22. If the gauge finishes above 20,000 today, it would be the second-fastest rise, 42 days, to a 1,000-point milestone since. the Dow climbed to 14,000 from 13,000 in the 59-day trading sessions spanning between late March and early July 2007.But, is the rise for the Dow really that significant? Some critics point out the benchmark only represents a smattering (30 in total) of the thousands of stocks that make up the broader equity market. Moreover, outsize moves in any one of its components, because the gauge is price weighted, can have a big effect on the Dow. Notably, the surge in shares of Goldman Sachs GS, +1.56%  which has benefited from expectations of looser Wall Street regulation and higher interest rates, has contributed about one-third of the Dow’s recent 1,000 point move since hitting 19,000 back on Nov. 22.

Also worth pointing out is that 1,000-point moves for the Dow aren’t what they used to be. In other words, when the Dow struggled and finally doubled from 1,000 to 2,000 in 1987 that move represented a 100% advance, but a climb to 20,000 from 19,000 represents a comparatively pedestrian 5% rise (as the chart included in this article shows). Of course, those returns highlight the silliness of keying in on arbitrary milestones.But don’t tell that to some market watchers.

The 120-year-old stock-market gauge holds a special place in the hearts of Wall Street investors. Here are some of their views as the 20,000 milestone approaches:The Dow remains the most watched measure of US stock market performance for the majority of Americans. That’s mostly because it has been around since 1896—it has a lot of history. If you ask the average American ‘How’d the market do today?’ they will invariably quote you the Dow.

Big round numbers gather attention, and Dow 20,000 will certainly be a level people notice. It is also important that it comes right after the presidential election, and the common wisdom had it that a Trump victory would hurt equity prices. Hitting 20,000 shows how wrong that pessimistic take really was.—Nicholas Colas, chief market strategist at Convergex

We view the Dow 20,000 level as more psychological than material for our investment process. Still, the Dow 20,000 mark could become a catalyst that encourages more retail investment. While this would likely boost all major stock markets, we would become concerned about a retail-driven rally post Dow 20,000.
—Mike Bailey, director of research at FBB Capital Partners, which oversees $900 million in assets.

There’s no question that the Dow hitting 20k is symbolically important, and while milestones may sometimes present interesting opportunities for day trading technicians, for long term investors, who really cares? Put the champagne back on ice. This milestone gives us a sense of where we are, not where we are headed. There’s a lot more important economic information and political actions for investors to digest and understand at the moment, which is far important than an arbitrary milestone. For long-term investors, this is likely just a blip on a long journey, and one they shouldn’t think too much about.—Mike Loewengart, vice president of investment strategy at E-TRADE

In and of itself, Dow 20K is not significant—but it is in what it means for the larger market. Typically, major milestones have acted as ceilings, and for an index to break through takes a lot of energy. If this market has enough push to break through 20K convincingly, it is quite possible we may see it run much further, and that is what people are watching for. Not so much 20K, but what is likely to come after that.—Brad McMillan, chief investment officer at Commonwealth Financial Network.

Along those lines some market participants think that pushing through milestones confirm and extend ongoing trends:

Part of the rally for the Dow, which coincides with record moves in the S&P 500 index SPX, +0.80% and the Nasdaq Composite Index COMP, +0.99% is on the back of hopes, as Colas highlights, that President Trump will deliver on promises to increase fiscal spending, reduce corporate taxes and dial down regulations that Wall Street views as debilitating to economic growth.

So far, POTUS is doubling down on hard-charging rhetoric on trade and on Tuesday promise to give more details around his plans to tighten immigration, including building a wall along the U.S.-Mexico border.