Dow 30,000: Here’s What This Wall Street Milestone Means | Coronavirus pandemic News


Wall Street passed its latest milestone when the Dow Jones Industrial Average broke above 30,000 for the first time this week.

The Dow Jones rose 454.97 points, or 1.5%, to close at 30,046.24 on Tuesday. Investors were encouraged by the progress in the development of coronavirus vaccines and by the news that the transition of power to President-elect of the United States, Joe Biden, is finally beginning.

Traders also welcomed the announcement that Biden has selected Janet Yellen, a well-respected former Federal Reserve chairperson, as Treasury secretary.

The milestone is a psychological threshold that is drawing attention, and it’s an encouraging signal that the market rally is expanding beyond the handful of stocks that carried Wall Street through the pandemic.

But the Dow at 30,000 means less to the 401 (k) retirement accounts of most investors than the fact that larger market indices are also hitting all-time highs.

Here’s a look at how the Dow Jones rallied to its latest multiple of 10,000, the first time this has happened since January 2017, and what it means for investors.

What exactly is the Dow?

This is a measure of 30 companies, mostly blue chip stocks spread across various industries. They include tech stars like Apple and Microsoft, as well as more traditional industrial companies like Boeing and Caterpillar. Other Dow giants include Nike and The Walt Disney Co.

Traders celebrated the milestone on Tuesday [File: Brendan McDermid/Reuters]

Unlike many other market metrics, the most important thing for the Dow Jones is the price of a stock, not the total value of a company.

This means that a 1% move for UnitedHealth Group has a bigger effect on the Dow Jones than the same move for Apple, even though Apple is more than six times the insurer. That’s because the UnitedHealth Group share price is $ 336.01 compared to Apple’s $ 115.17, due to a smaller number of shares in total.

How important is the Dow Jones at 30,000?

It’s just an arbitrary number, and that doesn’t mean things are much better than when the Dow was at 29,999. What’s more impactful is that the Dow has finally recouped all of its losses due. pandemic and again reached new heights. It is up 61.5% since falling below 18,600 on March 23.

It took just over nine months for the Dow Jones to surpass the record it set in February before panic over the coronavirus triggered the market’s breathtaking selloff.

What drove the Dow up?

The Dow Jones’ surge to 30,000 received a big boost from the Federal Reserve, which cut short-term interest rates to around zero and took other steps to stabilize financial markets, and Congress, which has released trillions of dollars in financial aid for the economy.

The economy has improved since the initial shock of the pandemic. For example, claims for unemployment benefits rose from 6.9 million in March to 742,000 last week. The company’s profits have not fallen as much as initially feared. And the possibility that a COVID vaccine could begin distribution by the end of the year has recently given the market more reason to be optimistic.

The Dow Jones is more heavily weighted towards stocks in the financial and industrial sectors, which were affected during the pandemic [File: Brendan McDermid/Reuters]

Among the sole proprietorships, Apple did the heavy lifting at the start of the Dow Jones rally after its price climbed nearly $ 275 to exceed $ 500 in late August. A four-for-one stock split on August 28 pulled Apple’s stock price below $ 130, lessening its effect on the Dow Jones, even as its total market value continued to rise.

Since then, Honeywell and Caterpillar have provided the biggest boost to the Dow Jones as expectations have been built for an economic recovery.

Over the longer term, earnings have strengthened significantly for most Dow companies since breaking above the 20,000 mark in early 2017. At American Express, for example, analysts expect earnings per share rebounds after the pandemic and stands at $ 6.69 next year. , compared to $ 6.07 in recurring profits in 2016.

At the same time, investors today are more willing to pay higher prices for every dollar in profit because the alternatives are less attractive. The 10-year Treasury yield on Tuesday was 0.88% compared to 2.5% in January 2017.

So does this mean that my 401 (k) retirement account is doing better?

Probably, but not because the Dow Jones is at 30,000. For most 401 (k) accounts, what matters a lot more is the performance of the S&P 500. That’s because a lot, a lot more funds Stocks directly mimic the S&P 500 or compare to that index as the Dow.

For most 401 (k) retirement accounts, what matters much more is the performance of the S&P 500 [File: Brendan McDermid/Reuters]

Almost $ 4.6 trillion in investment directly tracks the S&P 500, while an additional $ 6.65 trillion is measured by the performance of the index. That $ 11.24 trillion total is roughly 360 times the $ 31.5 billion in investments that track or benchmark their performance against the Dow.

Tuesday’s rally also pushed the S&P 500 above its November 16 record.

Why pay attention to the Dow Jones then?

One thing the Dow Jones’ final jump to 30,000 indicates is that it’s not just tech stocks that are ruling the market anymore.

Five big tech companies – Apple, Microsoft, Amazon, Facebook and Google’s parent company – alone account for nearly 22% of the S&P 500 by market value. This gives their movements an incredible influence on the S&P 500. The Dow Jones doesn’t even include Amazon, Facebook, or Google’s parent company.

Big Tech’s dominance early in the market recovery is one of the main reasons the S&P 500 returned to its pre-pandemic high in August versus November for the Dow. More recently, with growing hopes that a vaccine or two could soon arrive, stock market gains have started to widen.

The Dow Jones is more heavily focused on stocks in the financial and industrial sectors, which have outperformed technology recently after being crushed by the pandemic.

The next stop is the Dow Jones hitting 40,000, right?

Many Wall Street strategists are optimistic that stocks may continue to rise in 2021, mainly due to the prospect of a vaccine. But the market faces many short-term threats. Foremost among these is the worsening pandemic, which is pushing governments around the world to reinstate varying degrees of restrictions on businesses.

Bitter partisanship also means Congress is making little to no progress in providing increased financial support to the economy in the meantime. This paves the way for a potentially bleak winter for health and the economy.

So don’t be surprised if the Dow Jones crosses the 30,000 mark a few more times.

Source link

Leave A Reply

Your email address will not be published.