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- Here’s why Dow 20,000 is the ‘picture-perfect’ moment Wall Street has been waiting for
Here's why Dow 20,000 is the 'picture-perfect' moment Wall Street has been waiting for
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Loading...The Dow Jones Industrial Average finally hit 20,000 for the first time on Wednesday.
After two months and several teases — even to 19,999.63 earlier in January — the index finally achieved the milestone right as the stock market opened for trading.
The Dow is a price-weighted index of 30 important publicly traded companies that are used as a barometer of both the stock market and the overall US economy. It's a price-weighted index, meaning that stocks with higher prices have a greater influence on the Dow's direction. That's unlike the larger S&P 500 index, which is weighted by market capitalization and is more influenced by its components' actual value.
The weighting helps explain why Goldman Sachs' stock, the highest-priced on the Dow, contributed the most to achieving 20,000. A 1% move in Goldman Sachs, currently priced at about $236 a share, leads to a 16 point move in the Dow. Since the election, Goldman has rallied about 30%. But it only explains a small part of the story.
After the election, investors began to come to terms with the unexpected realities of what Trump would mean for markets and the economy. The lower corporate taxes, fewer business regulations, and big infrastructure spending that Trump had promised all appeared to be clearly pro-business, boosting confidence.
"The fact that we finally have cracked that barrier suggests that the rally is very likely to continue," McMillan said. "Barriers like that are hard to break and once they are broken, they can act as a support level."
But a close above 20,000 on Wednesday is what's needed to cement the milestone. It would officially make the move from 19,000 the second-fastest 1,000-point move ever at 64 days. The record is 35 days from 10,000 to 11,000 in 1999, just as sky-high valuations led to the end of the dot-com bubble.
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