First, I have no idea in the short term what the market will do, but I do know that some of the reports we hear about milestones in the market need some perspective.
The US stock market was nearly flat for over 2 years until the end of 2016; the Stock market has been on a tear ever since. While we may think this is great, we say to ourselves this cannot go on forever; it is climbing too high too quickly. Whether the market is fairly valued is for another debate, but we must remember a 1000 point gain today is not like a 1000 point gain of the past
Yes the Dow Jones recently hit 26,000 only 8 trading days after hitting 25,000. Is this too quick?
After all, the DOW did take 15 Years (from 1972 to 1987) to gain 1000 points from 1000 to 2000. Gaining 1000 points in only 8 trading days is crazy. There are important differences here, however. First the gain from 1000 to 2000 is a 100% increase. The gain from 25000 to 26000 is only 4%. For the Dow to do what it did from 1972 to 1987 it would need to rise to 52,000. No one is expecting that anytime soon.
In fact, later in 1987 the Dow lost almost 23% in one day; a 508 point loss. If the Dow lost 23% now, it would be a 5,980 point loss. Conversely, a 508 point decline today would be less than a 2% loss. Not a good market day, but hardly devastating. (In fact, the Dow gained 507 points the week of January 8th)
The great crash of 1929 saw the Dow fall by 38 points on October 28th and 30 points on the 29th. A 68 point decline in todays market would only be a miniscule…well, you get the picture
My point is that hearing about these gains of 50, 100 or even 200 points in the past were much bigger changes than today. A 100 point gain when the Dow is at 10,000 is a 1% move. A 100 point gain when it is at 25,000 is only a 0.4% move
We hope the economy continues to improve to drive the Market to to rise further and fairly valued. If this is the case, you will hear more of these 1000 point milestones. You will also hear more 100 point or greater daily gains (and Losses!) and that will be normal.
In fact, in a few decades, we may regard 10,000 point increases as milestones to celebrate. We’re using bigger numbers now; It’s all relative.
