The surging stock market has brought the Dow Jones Industrial Average to within a whisper of 20,000, a symbolic threshold.
The milestone seemed unlikely, if not impossible, during the nadir of the recession. Today, a stronger economy and optimism about a more business-friendly administration have brought the index tantalizingly close to that benchmark.
But, according to experts, there’s nothing particularly special about the number, per se.
Nothing But a Number?
“It’s just a psychological barrier,” said Peter Cardillo, chief market economist at First Standard Financial. “It’ll create some excitement but... it doesn’t mean that much,” he told NBC News.
The Dow Jones isn’t even considered by finance pros to be the best benchmark for measuring the strength of the market; the broader S&P 500 is better for that, but the Dow has the name recognition.
Cardillo said corporate earnings could be a key near-term factor that pushes the index past 20,000 or keeps that benchmark just out of reach.
“The market is high. We need a good earnings season,” he said, with growth in both top and bottom line numbers.” If that doesn’t happen, you could see a pullback sooner rather than later,” he said.
Consumer Confidence Boost
If strong earnings do propel the Dow over 20,000, that could give a confidence boost to ordinary American consumers and investors, said Bankrate.com senior economic analyst Mark Hamrick, and some of that excitement could be good for getting skittish investors off the sidelines.
“Millennials have tended to be underinvested in stocks and they’re one whos who, particularly for retirement, can better weather the market’s gyrations,” he said.
Hamrick added, though, that the market might be looking at the incoming administration with rose-colored glasses, assuming lower taxes and lighter regulation without taking into account the potential for setbacks.
“I think the market has been pricing in only positive outcomes of the Trump administration,” he said.
“The hitting of the benchmark isn’t a huge development for investors, but I do think the broader trend of stocks' long-running ascent is something investors should pay attention to,” said Christine Benz, director of personal finance at Morningstar.
“Generally speaking, it’s been a tremendous run,” she said, with gains higher than historical long-term averages.
The Down Side
And what goes up must, eventually, come down.
“Investors should use the milestone to take a close look at the risk that’s in their portfolios,” Benz said. “We do see the market move in cycles.”
Hamrick also sounded a note of caution. “Investors of all kinds should be mindful that the same volatility that propelled the market higher could propel it in the other direction,” he said.