People are freaking out right now because the Dow Jones Industrial Average just hit 20,000 points for the first time in stock market history.
According to Mic, the Dow Jones Industrial Average is considered to be a snapshot of where the stock market is headed because the index includes a lot of the country’s largest and most profitable companies like McDonald’s, General Electric, and IBM.
The index first topped 19,000 on November 22. The past month and a half or so have been the second fastest 1,000 point run in Dow Jones Industrial Average’s history.
However, the Dow does only include 30 companies, which is a fairly small sample size. Many of the stocks within the Dow are considered to be predictable and “boring.”
The best performing Dow stocks over the last month or two have been Goldman Sachs, Disney, and Boeing.
Spikes in Caterpillar, Boeing, JPMorgan, and Travelers helped push the Dow over the 20,000 market on Wednesday.
Chief global investment strategist at Charles Schwab, Jeff Kleintop, said that the election has definitely impacted the Dow.
Cramer: To get to the next level, we need Trump’s tax breaks
Wall Street’s bull should keep running even after its race to Dow 20,000 from its last thousand-point milestone, but it’s much more likely to slow to a trot before it reaches 21,000.
Gains in Caterpillar,Boeing, JPMorgan, and Travelers helped push the Dow across the 20,000 marker on the opening Wednesday.
“Individual investors have started buying again, really since the election.
“A psychological number like 20,000 helps to continue that trend, helps to bring in investors that have been sitting in cash and it really helps to keep the money flow coming in.
“We see this as a positive year, largely because of the individual investor, and not just corporations buying back stock any more.”
People are also at odds because the Dow weighs stocks with a high share price more heavily than its modern competitors like the S&P 500, which is more representative of the broader market and contains 500 stocks.
A stock’s share price is pretty meaningless without taking into account the number of outstanding shares.
The 20,000-point stock market rise has been expected for a while now. Of course, not everyone is excited or obsessed over the five-figure milestone. Investor and financial writer Douglas Kass called the buzz surrounding the stock market points “asinine” on Twitter.
In one word - the DJIA 20k watch is ... Assinine. Stated simply.— Douglas Kass (@DougKass) January 6, 2017
Some market watchers are becoming concerned that stocks are getting too expensive and that the post-election gains have come way too fast.
“Expensive” stocks have a share price that is higher than what you would expect, given the company’s profits, earnings, or whatever else.
The cyclically adjusted price to earnings ratio (CAPE) was developed by economist Robert Shiller. The CAPE is beginning to dance around the danger zone.
Right now, the CAPE is around 28. The CAPE has only been this high a few times in history: before the 1929 stock market crash, the 2000 internet bubble crash, and the 2007 housing market crash.
Other financial skeptics believe that the market is pricing in enthusiasm over some of President Donald Trump’s policies, including business tax breaks. However, other potential risks, like the increased possibility of a trade war or even nuclear war, have been ignored.
It is likely that it will be a slow trot before the Dow reaches 21,000 points.
[Featured Image by Drew Angerer/Staff/Getty Images]