Traders last week most likelysaw the Dow Jones close above the 20,000-point mark for the first time in its history.
The Dow’smilestone made headlines around the world, with some experts claiming it represents a significant psychological shift, and could ultimately push the index to even greater heights. For others, the Dow Jones serves as a somewhat outdated measure of the strength of the U.S. economy, since it’s a price-weighted index, including only 30 major companies.
Since Donald Trump won the election in November, US indices have been rallying across the board. The momentum has been supported by the new administration’s position on infrastructure investments,ease on euro currency, and proposed tax cuts. If the “Trump Bounce” keeps going, depends on a wide range of factors, from the President’s relations with other world leaders, to an escalation in the current social situation in the US.
The Dow Jones managed to break past 20,000 level last week, but does it matter to investors?
The Dow Jones was established in 1896 and is based on 30 blue-chip stocks, including Goldman Sachs, Disney, McDonald’s and Microsoft. It offers a useful snapshot of the USA’s top companies, but it only reflects share prices, rather than a company’s market capitalization– the stock price multiplied by the total number of shares.
However, the Dow Jones doesn’t take the relative size of each industry sector into account. High-priced stocks have a far greater impact on index movements,than lower-priced assets.
Goldman Sachs’ price evaluation is a good example. A surge in the price of its shares contributed to around a third of the Dow Jones’ recent rally from 19,000, up to 20,000 points.
If President Trump can follow through on his policies of re-establishing the USA as a global manufacturing base, then perhaps he and his supporters can deliver on his famous campaign slogan.