Milestones. A stage or important development in something that marks just how far we have come. It is a word that con- notes achievement, struggle and great distance from where we were to where we are today. This is exactly what the Dow Jones milestone of 20,000 points reached on the 25th of January 2017 represents. At this point you may be asking yourselves: what is the Dow jones? And why are these 20,000 points so great? These are exactly the type of questions I am looking to answer as you read on!
The Dow Jones Industrial Average (DJIA) is a price weighted average of one stock from 30 different companies which are of great importance and are traded on the New York Stock Exchange (NYSE). By great importance it is meant that the stocks with the highest share prices have the greatest weight in the index. The Dow Jones index is actually a very old one and was invented by Charles Dow in 1896 with its purpose being, simply put, to demonstrate how “good” or “bad” the stock market is, i.e. the status of the economy in the U.S. In order to calculate this value of the Dow it is necessary to use the Dow Divisor. The Dow is calculated by adding up the prices of the 30 stocks and then dividing that number by the divisor which is actually published daily in The Wall Street Journal.
But what does the Dow Jones reaching 20,000 points signify?
Why are so many people so excited about this milestone? Well, since the Dow Jones is in extent a representation for the U.S. economy this is very good news, as it in simple terms means that investors are becoming more positive about the economy and therefore buying and spending more on stocks, which in turn creates a future expectation of a rise in stock prices. Since the Dow hit rock bottom in 2009 as a consequence of the 2008 financial crises, the Dow has slowly but surely increased since then and for the first time ever reached 20,000!
Although greatly celebrated this milestone has had a lot of controversy around it as many professional investors are skeptical about the Dows 20,000 benchmark and if it really is an indication of economic growth since the Dow is mainly a representation of the economy in the U.S. However, this being said the benchmark is not a negative one as it is said to lift the spirits of weary investors in the stock market who lost big in the 2008 crises as well as increase the market expectations for the future.
Another important aspect to take into account is that this milestone occurred during the first month of the Trump administration, which means that Donald Trump has not held back on taking credit for this accomplishment. In turn there have been many who have found this controversial as they argue that this milestone was only reached due to the economy that was put in place by the Obama administration, and that Trump had no part in it. This is obviously subjective depending on whether you believe Trumps administration and recent executive orders have induced an optimistic view on the American economy’s future or if this milestone was only made possible thanks to the Obama administration. Either way this milestone is one for the economic history books and possibly more of a psychological achievement for the NYSE than a physical one of profits. But one thing is for sure and that is that it is a positive achievement for the U.S. economy and a step in the right direction!