Dow Rises 5,000 Points In A Single Year For The First Time In History

Nathan Walker 12/19/17

New York Stock Exchange

One of the core indices that are used to gauge the health of the US economy has reached an important milestone this week. The Dow Jones Industrial Average has risen by 5000 points in a single year for the first time ever. The Dow rose 140.46 points to close at 24,792.20 on Monday. On pace to hit 25,000 points by the end of the year, the fund is up from 19,881 at the beginning of the year. The Dow has shown astonishing rates, rising 25% over the year. The return rates are being reflected in other indices as well, with the S&P 500 and Nasdaq both up 20.2 percent and 29.9 percent. The news has been met with mixed responses from investors, who are both excited at the potential gains still to be had, while also worried about a potential downturn once the dust settles.

         The Dow Jones Industrial Average, or “the Dow”, is a price-weighted average of 30 significant stocks traded on the NYSE and the NASDAQ. Invented by Charles Dow back in 1896, the DJIA was created as a means of making it easy to communicate the general changes in stock market values. As a price-weighted average, it looks at the average price of all of the stocks in the index and gives greater weight to stocks with higher share prices. The end result is a number that can be spoken of in terms of points rather than dollar amounts, and has a stable value even when mergers or stock splits happen. The index watches a range of companies to monitor the overall health of industry in the US. Originally only 12 companies were in the index, but this has changed over the years and now there are 30 stocks in the Dow.

         The growth is exceptional, even looking at the last few decades, where the Dow has grown to record highs. After hitting several milestones during the 90s, things looked dire in 2008’s market dive. Fortunately, market conditions recovered and it has grown significantly since then, exceeding even previous levels, to bring us to a record high by the end of 2015. The Dow stagnated a bit in 2016 with the tough campaign season, but the election of Trump sparked a rally that has not slowed since election night. The first landmark it passed was 20,000, five days after President Trump took office in January.

Market Quotes by TradingView

         Most commentary about the success of the market right now circles around the Republican-backed tax plan, a very ambitious plan that seeks to lower corporate tax rates to 21%, down from the current 35%. Investors are extremely optimistic that the bill will pass, and will result in substantial growth for the future. While the bill does not have bipartisan support, the Republicans currently control both the House and Senate, meaning their bills are far much more likely to pass. Congress is currently set to vote on a consolidation bill later this week and if that is passed, it will go to Trump who will most assuredly sign it into law.

         Despite the optimistic news and generally positive outlook, there are potentially bearish indicators. One indicator is the current RSI, which is over 80 for the first time since 1995, and could be pointing towards the market being oversold, meaning a negative price correction could be impending. Another indicator is the spread between its 200 day moving average and closing price, which has exceeded as much as 13%. This is generally viewed as unsustainable, but it’s conceded that there is still a bit more room for growth. Additionally, it’s also important to point out that the Dow is also simply bigger than it was a few decades ago, which helps put the growth into perspective.

         But overall, the news is welcome. This level of improvement has people extremely excited. Investors expect the growth to continue into 2018, though maybe not at the rate that we’ve seen through 2017. GDP growth in the US has been a major stat that the White House has pointed to as a yardstick for the success of their policies, so expect to see further legislation and other action to help improve economic conditions for the US and help bring some of that business back to the US.

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