The Dow Jones industrial average is in record territory, flirting with a remarkable milestone: 20,000 points.
Can you feel the excitement? That’s the point. Economies are complex, but the Dow is easy to grasp, which is why it’s such an important indicator. Tacking a new set of zeros on the Dow is like rolling over the odometer in your car — a meaningful achievement that can be experienced by everyone.
But here’s the difference between the Dow and your odometer: Your odometer doesn’t also work in reverse.
A few numbers to tell the story: The Dow first broke the 1,000 barrier in 1972, then slid backward and didn’t stabilize as a four-digit number until 1982. The Dow first crossed the 10,000 mark in 1999 but lost its footing in the dot-com crash of 2000.
Much the same thing happened during the Great Recession: The Dow peaked above 14,000 in 2007, then plummeted by more than 50 percent on its way to a rock-bottom close of 6,547 on March 9, 2009.
The Dow’s dalliance with 20,000 feels especially tenuous because investors are betting on expectations for a pro-business Donald Trump presidency, rather than on concrete corporate performance. But that’s almost always a crucial component of why stocks take off: The experts are laying bets on the future performance of companies.
There’s reason to think Trump could be good for the economy, and stocks. He and the Republicans in control of both houses of Congress appear in basic agreement to encourage business investment and thus hiring. Trump would cut taxes for businesses and many individuals and reduce onerous federal regulations that hold back some economic activity. He’d loosen the strings on the energy industry, for example, allowing big projects like the $8 billion Keystone XL oil pipeline to proceed.
We like those ideas. The American economy has recovered from the financial crisis and by many basic measurements is on solid footing. The jobless rate is below 5 percent and the markets, as we noted, are strong. But the economy is expanding at only “a moderate pace,” according to the Federal Reserve. There are still millions of Americans who want to work but aren’t even looking. Wage growth is soft. Interest rates will rise, but probably not to a degree that chokes growth.
To juice growth, Trump is talking about investing big in infrastructure. He’s considering a $1 trillion stimulus plan to be financed through … well, that’s not yet clear. If you’re wondering why shares of construction giant Caterpillar are up 9 percent since Election Day, this hope for infrastructure spending is your answer.
Here’s what we can say with certainty: The good times come and go, but the wisdom of Milwaukee investor Albert Nicholas is timeless. Nicholas, the brain behind the Nicholas funds investment company, died recently at age 85. He once offered a Chicago reporter some perspective on market volatility and the importance of investing for the long term:
“Two-thirds of the time, stocks are going up,” Nicholas said, approximately. “One-third of the time, they’re going down. Don’t try to guess which third is which.”
The U.S. economy under President Trump is in for an interesting time. Wall Street will go along for the ride. So where is the Dow headed? Once more:
Don’t try to guess which third is which.
— Chicago Tribune
