Dow Hits 20,000 — Should We Care?

The Dow Jones Industrial Average, a popular stock index, crossed over 20,000 Wednesday, a landmark high for the long-running stock index.

And while the number itself is sure to generate a lot of attention, and the rising stock market is surely of note, the milestone itself is relatively meaningless. The number 20,000 itself is not intrinsically significant; however, the psychological impacts of reaching the number may be very real.

But financial experts tend to be broadly skeptical about the significance of the Dow, tending to prefer other measures of stock market health like the S&P 500.

“The Dow hit 20,000. The Queen of England turned 90 last year. Both are round numbers. Neither carry any real significance,” said Greg McBride, chief financial analyst of Bankrate.com.

“Let the hysteria about Down 20,000 begin. The S&P 500 and Nasdaq both closed at record highs yesterday and it barely warranted a mention," he continued. "But people love round numbers.”

Others point out that this "hysteria" itself may be significant on its own.

"It’s psychologically huge and, after a bit of pullback ahead of the inauguration, really confirms that the ‘great rotation' from bonds to stocks is definitely upon us," said Neil Wilson of ETX Capital in the Telegraph. "Fears about protectionism are running second to optimism about inflation and growth – for now at least."

President Donald Trump appears to be one of those people who loves round numbers. After the news broke today, he sent out a celebratory tweet (from the official @POTUS account):

McBride also explained why the Dow is generally seen as a less important index than others: "The Dow Jones Industrial Average is a price weighted index rather than a market capitalization weighted index like the S&P 500. Stocks with higher prices have a far greater influence on the Dow, regardless of the actual worth of the company."

One of the problems analysts have with the Dow is that it only includes 30 companies stock prices, whereas the S&P 500 has, as the name implies, uses 500 companies. This makes the Dow much more volatile, and for this reason, it frequently swaps out different companies in its calculations to stay in line with the other indices.

For what it's worth the S&P 500 broke 2,293 Wednesday, and the NASDAQ broke 5,642. Time to celebrate.

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