The post-election stock market rally has propelled the Dow Jones Industrial Average to new highs. Tuesday’s intra-day peak of 19,953.75 is just a stone’s throw away from 20,000. But does Dow 20,000 hold any real significance?
El-Erian Weighs In
Mohamed El-Erian, chief economic adviser at Allianz, told Benzinga he doesn’t see any major analytical implications.
“It certainly is a notable milestone and, when attained, it will be remembered in finance history books and market folklore – especially as the recent move up in the index comes after an unusual election, was unexpected and was driven primarily by the President-elect’s pro-growth and pro-liquidity remarks,” El-Erian explained.
TD Ameritrade chief strategist JJ Kinahan agrees that Dow 20,000 is a “nice talking point, but I’m not sure it means very much.”
Kinahan told Benzinga he believes the market has a lot of pent-up demand now that the election uncertainty is gone. Additional uncertainty will be removed on Wednesday when the Federal Reserve will likely officially announce an interest rate hike.
U.S. Equities ETFs And Market Volatility
Less uncertainty is typically good news for broad U.S. equities ETFs such as the SPDR S&P 500 ETF Trust SPY. It also typically means less market volatility as well. The iPath S&P 500 VIX Short Term Futures TM ETN VXX is down 19.5 percent since Election Day.
It’s certainly been a bumpy ride for the Dow on its long journey to 20,000. However, through thick and thin years, the index has averaged an annual return of +7.27 percent.
Quintanilla Chimes In
CNBC’s Carl Quintanilla tweeted a number of interesting Dow Jones facts on Wednesday morning in anticipation of the 20,000 mile-stone.
Psychological Turning Points
While there may not be any obvious fundamental reasons for investors to worry about the 20,000 level, round numbers such as 20,000 often serve as psychological turning points for the market.
The Sordid History Of Republican-Held Capitol Hill
While President-elect Donald Trump’s policies may be driving the post-election surge, popular finance blog Wall Street Rant points out that unified Republican governments have a terrible track record when it comes to stocks.
“In fact, the only 3 periods [emphasis omitted] of extended unified Republican governments going back to 1900 all directly [emphasis omitted] led to banking crises [...] Arguably the 3 worst in US history,” according to the blog . The three periods in U.S. history since 1900 in which Republicans controlled the White House, Senate and House of Representatives for at least four years directly led to the Panic of 1907, the Great Depression and the Financial Crisis of 2007–2008.
Even Trump himself has admitted that the economy tends to perform better under Democratic leadership.
“I’ve been around for a long time, and it just seems like the economy performs better under the Democrats than the Republicans,” Trump said in a 2004 interview.
During the campaign season, Trump said that one of his top priorities when in office would be to eliminate the Dodd-Frank banking regulations put in place after the Financial Crisis.
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