Last week, the Dow Jones industrial average closed above 20,000 for the first time in history, leading many to wonder what its future holds and how recent events will continue to impact it. The Dow represents an average of 30 important stocks traded on the New York Stock Exchange, a strong indicator of the current economic state.
Jeffery A. Born, professor of finance, provided some insight on the record high.
Born believes the historic moment can be attributed to three main factors. These include the slower rise of interest rates and better fourth-quarter earnings (exempting some such as brick and mortar retailers). Some investors are also optimistic that President Trump will reduce taxes and regulations in the business sector, while spending money on infrastructure.
“When you have been an investor as long as I have (I started at age 13 in 1968), you have seen many of these milestones before (1,000; 5,000; 10,000; now 20,000). Each time there has been a bit of anticipation and anxiety, as if there was something magical about these big, round numbers. For the sophisticated investor, they’re not anything special. The Dow is more important psychologically than as a barometer of how well all business is doing,” said Born.