The Dow hit 20,000 last week. Why is it such a big deal that it crossed 20,000?
It is a major milestone and a reminder of how far we have come since 2009 – more than triple the low we reached in March of that year. That said, the number itself is more symbolic than anything. traders like to see big, round numbers with lots of zeros after them, and investors do too. Crossing a level like DOW 20,000 is not fundamentally more important than crossing 19,900, but these big numbers have roles as psychological barriers and benchmarks.
For example, crossing the 20,000 mark many free investors up to move the market higher, having hesitated for a few weeks.It is also true that these numbers tend to penetrate the news cycles and reach more Americans. In terms of financial impacts, it doesn’t change a whole lot, though. Some technical traders and some trading algorithms may give it some weight, but for investors, it’s just another number. A very positive one, certainly, but again more symbolic than anything.
It is a big number, especially considering where we were just a few years ago, so i have to ask: what is driving the Dow to this level?
There are two main factors that are driving this bull run: fundamentals and optimism. First, in short, the economy has rebuilt a strong foundation since the Great Recession. Over the last 81 months the private sector has added an impressive 15.6 million jobs.
In November, the unemployment rate hit 4.6 percent for the first time since August 2007. We have seen wage growth pick up steam over the past year as well. Last month, when the Fed decided to raise rates, Fed chair Janet Yellen noted the confidence committee members have in the progress the economy has made, and said “the economy has proven to be remarkably resilient.”
Secondly, consumers and investors alike are glass half full. Consumer confidence also improved in November, reaching pre-recession levels once again. The more confidence consumers have, the more money they spend, which is the key to a strong economy, and a strong stock market. In addition, investors are expecting the new administration to cut corporate tax rates, which would boost corporate bottom lines.
Will we continue to see positive movement on the markets?
We don’t make market predictions on the show, but iIwill talk about some of the signs that are out there. A few things point to positive momentum on the markets, signaling the bull market still has room to run. Corporate America has a solid foundation, and optimism is high. That said, I think the sugar rush of recent months – the so-called Trump bump – may be over, for a couple reasons. The expected tax cuts and regulatory reform is now priced in. Earnings have slipped slightly and GDP growth has slowed. So, while things are in good shape, some factors suggest investors may take a wait and see approach in the months ahead.
How are everyday Americans impacted by a strong stock market?
Obviously, the positive market movement is good for all investors. If you have a stock portfolio, the second longest bull run in stock market history has been a boon for you. Many Americans have not been impacted. after all, you can’t benefit from the stock market growth if you don’t invest money, and sadly, that is around half of Americans.
Researchers and surveyors have found that a majority of Americans have nothing invested in the stock market. one survey from Bankrate put the number at 54%. That means no money in pension funds, 401(k) retirement plans, IRAs, mutual funds or ETFs, and that means these individuals are really missing out.
For those out there who many not have any investments, what would you tell them?
First, it is not hard. It may seem scary, but do not be intimidated. For many people, it is simply a matter of talking to your Human Resources department and asking if your employer offers a plan, and what the options are. If your employer sponsors a plan, it is very easy to start making direct contributions to that plan. If you do not have access through your employer or a pension, you can reach out to a firm like mine, Ariel Investments, to help get started. The second thing to remember is that saving does not have to be a burden. You can start out with small amounts and build over time. You do not have to have thousands of dollars to start investing. Everyone has to start somewhere. The most important thing is to start, so that you can take advantage of the stock market future growth!
Mellody is President of Ariel investments, a Chicago-based money management firm that serves individual investors and retirement plans through its no-load mutual funds and separate accounts. Additionally, she is a regular financial contributor and analyst for CBS News and CBS.com.
