<\/p>\n
With the recent 130th anniversary of the Dow, let\u2019s take a closer look at why this old and narrow index still commands so much attention.<\/p>\n
Until the S&P 500 began circulating in the 1950s \u2013 and then NASDAQ in the 1970s \u2013 the Dow was the most widely quoted measure of the market\u2019s health each day, but it was not the first market index, or even the first \u201cDow\u201d measure. Dow Jones & Company was founded in 1882, and its first index,\u00a0widely known as the \u201cRailroad Average,\u201d\u00a0was created in 1884 and consisted of 11\u00a0stocks, all but two of which were railroads.<\/p>\n
The first Dow index was published daily in a news sheet\u00a0that later became\u00a0The Wall Street Journal, originally called\u00a0Customer\u2019s Afternoon Letter. In the mid-1890s, after these rails were \u201cderailed\u201d in the Panic of 1893, Dow Jones decided to diversify, so 12 industrial stocks were chosen to create a wider diversity:<\/p>\n
American Cotton Oil CompanyAmerican Sugar CompanyAmerican Tobacco CompanyChicago Gas CompanyDistilling & Cattle Feeding CompanyGeneral ElectricLaclede Gas CompanyNational Lead CompanyNorth American Utility CompanyTennessee Coal & IronU.S. Leather Company (preferred)U.S. Rubber Company<\/p>\n
A quick survey of those 12 names makes it clear that most stocks don\u2019t live forever. Only General Electric has remained on the list from 1896 until now \u2013 although GE was removed (and then reinstated) twice. Most of these 12 names were merged into other companies, which required Dow to adjust the index.<\/p>\n
Related: Navellier explains why Micron is better than SpaceX<\/p>\n
The Dow numbers took on mystic powers, reflected in various phobias about crossing \u201cbarriers\u201d like 1,000, 10,000, and now 50,000.\u00a0 The Dow first reached\u00a0995\u00a0in 1966 and then retreated from the 4-digit barrier for six years. It first closed above 1,000 on November 14, 1972, but it took a decade to stay above 1,000.<\/p>\n
The Dow first reached 10,000 on March 29, 1999, but it then took almost a decade to stay above 10,000.<\/p>\n
Today, the S&P 500 is a much more broadly diversified market indicator for blue-chip stocks, comprising 11 major sectors and dozens of subsectors, while the Russell 2000 best reflects small stocks, and the NASDAQ seeks out tomorrow\u2019s most promising emerging companies and sectors, notably technology. Yet most investors still look at the Dow first, wondering how many hundred points it gained or lost today.<\/p>\n
Can the Dow Stay Above 50,000?<\/p>\n
The question remains \u2013 will it take another decade for the Dow to stay above 50,000?\u00a0 I\u2019d say\u2026No. The Dow will likely meet more resistance at six-digits \u2013 Dow 100,000 \u2013 perhaps sometime in the 2030s.<\/p>\n
Here are the three major bear markets in the Dow in the last 100 years.<\/p>\n
Data source: Stock Trader’s Almanac<\/p>\n
Data source: Stock Trader's Almanac<\/p>\n
For balance, here are the three strongest bull markets in the Dow\u2019s last century. In our nation\u2019s 250-year history, we enjoyed essentially flat prices for nearly two centuries, before debauching our currency in 1965 (when LBJ ended silver coinage) and 1971 (when Nixon closed the gold window), leading to 10-fold price gains since 1967, but inflation was under control as long as the U.S. followed a gold standard.<\/p>\n
Data source: Stock Trader’s Almanac<\/p>\n
Data source: Stock Trader's Almanac<\/p>\n
So far in the 2020s, the Dow is up 172%, from a low of 18,760 in March 2020 to 50,600 now, so we may be able to cite another Roaring 20s decade at the end of 2029, but that depends on our political choices.<\/p>\n
The Dow may be outdated and limited in scope, but I\u2019m still waiting for the day when news reports lead with the S&P 500 (now at a rather mundane level of 7,500 or so) instead of citing the Daily Dow data.<\/p>\n
Related: Apple price hikes raise big question for iPhone shoppers<\/p>\n
#Investors #Dow #Jones<\/p>\n","protected":false},"excerpt":{"rendered":"
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