On Wednesday, the Dow Jones industrial average reached the 20,000-point mark for the first time in the index’ 120-year existence. The move was a huge surprise as barely anyone expected the Dow to regain steam after it had collapsed under the 16,000-point mark in February.
Last February’s index was influenced by a high volatility on the East Asian markets, record low oil prices, and uncertainty over the new U.S. administration. The United Kingdom’s decision to leave the E.U. – the so-called Brexit – gave another major blow to the indicator which sank 600 points in the wake of the popular vote.
However recently, the Dow needed just 42 working days to rise from 19,000 to 20,000. The pace is mind blowing if we take into account that it needed about two years to climb from 18,000 to 19,000. This Wednesday’s rise marks one of the quickest 1,000-point gains in the index’s 120-year history. The only time the Dow was faster in gaining 1,000 points was in 1999 when it jumped from 10,000 to 11,000 in just 25 business days.
What’s more, the index needed 15 years to advance from 1,000 points in 1972 to 2,000 points. Also, it needed three more years to climb from the 2,000-point close to 3,000 in 1991. Decades ago, the Dow reached 1,000 point marks at a slower pace because the growth was much higher.
For instance, a gain from 3,000 points to 4,000 required a growth of 33% between 1991 and 1995. By contrast, the recent gain from 19,000 to 20,000 required just a 5.3% growth.
The index is named after Charles Dow, one of the founders of Dow Jones & Company and a WSJ editor, who first calculated it in 1896. Twenty years later, the index was expanded to 20 industrial companies. In 1928, it was broadened to 30 companies.
However, expert caution the Dow is not a fail-proof indicator of economic performance. Yet is has constsitently stayed up during times of growth and plunged dramatically during downturns. For instance, the Wall Street Crash of 1929 sank the index to record low levels starting the Great Depression. The Dow needed 25 years to return to pre-crash levels.
It is worth noting that not all market crashes signal a financial and economic crisis, but they are a clear sign something will go wrong. During the Great Recession, Dow experienced the largest losses since the Great Depression. On March, 9, 2009, it hit the lowest level and needed four years to return to pre-recession levels.
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