It's been more than seven months since the Dow Jones Industrial Average (^DJI 0.56%) last broke above a psychologically significant big round number, but it looks like we'll see the next record any day now, perhaps even tomorrow. After surging throughout the day, the Dow finished trading at a new all-time high of 16,956 points, a mere 0.3% away from 17,000. The bull market that began in 2009 has pushed the Dow's ceiling higher 63 times since it first broke through 2007's peak early last year, with 11 fresh records arriving since the end of April.
Source: Wikimedia Commons.
The days of frenzied reactions to a 100-point or 500-point milestone are long gone, as each new milestone shrinks the gap the Dow must leap to make its next big number. The jump from 16,000 -- a milestone set last November -- to 17,000 is a mere 6.3%, and the Dow has only needed to grow by 21.4% to move up from 14,000 to 17,000. To us, moving from 16,000 to 17,000 is worth exactly as much as the move from 8,000 to 8,500 was in the late 1990s. The time between those two milestones was about the same as the likely time between our latest milestones, as well -- the index went from 8,000 in mid-1997 to 8,500 in early 1998.
Investors shouldn't really care about such milestones, but their arrivals do provide a powerful signal that a bull market still has legs. However, investors should also tread cautiously around any comparisons to the bull market of the 1990s, just as investors of the late 1930s would have been wise to avoid falling for the type of exuberance seen in the 1920s.
By the time 17,000 rolls around, it will have been just the third major milestone breached by the current bull market, just as the bull market of the last decade set only three new milestones of its own after breaking through the record close of 2000. By comparison, the 1980s (when 100-point milestones still mattered) and the 1990s (which tracked 500-point milestones for many years) both reached more than a dozen newer, bigger round numbers before finally running out of gas:
|
Bull Market Decade |
New Milestones Reached |
Total Growth |
|---|---|---|
|
1980s (82-87) |
13 (1,100 to 2,600) |
250% |
|
1990s (90-99) |
16 (3,000 to 11,000) |
395% |
|
2000s (03-07) |
3 (12,000 to 14,000) |
95% |
|
2010s (09-14) |
2 and counting (14,000+) |
160% |
Sources: Wikipedia and St. Louis Fed.
Note: Milestones are tallied in 100-point increments to 2,500+, 500-point increments from 2,500 to 10,000, and 1,000-point increments from 10,000 points onward.
Milestones, by themselves, don't mean much when it comes to the market's potential for growth, particularly if the Dow is starting its rebound after a historic collapse, such as the one in 2008. However, a milestone is worth considering for what it says about the investing atmosphere.
The Roaring 20s, for example, began with the Dow in the mid-single-digits and only ended when it was at nearly 400 points. Even if we only count 25-point milestones in this era, the Dow reached 11 new quarter-century milestones during its eight-year surge. The bull market that followed the crash of 1929 resulted in no new milestones -- the Dow wouldn't reach 400 points for another 25 years -- but it still produced the index's third-best bull market growth rate in more than a century of tracking, behind only the 1920s and the 1990s. Our current bull market, even with a handful of new milestones, still resembles the 1930s more than the 1920s or the 1990s.
And what is there to celebrate about 17,000? The milestones of the 1990s -- just like those of the 1920s -- were driven not just by exuberance, but by real economic growth. Productivity soared. New technologies proliferated. Unemployment reached microscopic levels. Investors flocked into the markets in record numbers. Today things look somewhat different. While major corporations, including many of the Dow's components, are thriving, much of their growth has been found abroad, and just 13 Dow components hold two-thirds of a $1 trillion in accumulated foreign profits. Unemployment is higher than it's been since the early 1980s, and many of the jobs that have been created offer weak wages and paltry hours. A record-high 67% of American adults owned stocks 2002, but that rate has slipped to just 54% today.
There's a new record coming. You can be sure of that. But it won't be much to celebrate.
