Trying to put the Dow Jones industrial average’s rise above 20,000 into context is not easy. In the grand scheme of things, 20,000 is no more significant than, say, the first time the index crossed above 19,600 or any other random number. It just feels important and has been getting much attention (not to mention hats) because 20,000 is a big, round number. As I explained last month, our brains like to take easy-to-remember numbers and compare them to other easy-to-remember numbers, such as 10,000. Nonetheless, since Dow 20,000 has attracted much attention, some attempt at providing context is warranted.
To begin with, crossing the last 100-point gap turned about to be nearly as difficult as ascending the Hillary Step is for a fatigued climber (the Hillary Step is located just below the summit of Mount Everest). The blue-chip average spent 28 trading days trying to get from 19,900 to 20,000. Jamie Farmer of S&P Dow Jones Indices said the Dow spent more days trying to climb up the last full 100 points than it had during any of the previous 1,000-point moves between 10,000 and 19,000.
In terms of how long it took to double, nearly 18 years have passed since the Dow Jones industrial average first reached 10,000 on March 29, 1999. This equates to a gain of just under 4% per year on an annualized basis. To provide insight as to whether this is historically good or bad, I reached out to Howard Silverblatt, the senior index analyst at S&P Dow Jones Indices. Continue Reading »
More on AAII.com
- Historical Performance and Future Stock Market Return Uncertainties – Historical returns for the stock market are influenced by when they are first measured.
- Stock Price Movements Are Unpredictable – Not everyone is trying to find meaning in Dow 20,000; some, such as Princeton professor Burton Malkiel, believe stock prices follow a random walk.
Highlights from this month’s AAII Journal
- Lottery Stocks’ Unique Returns Around Earnings Announcements – Stocks with high expected returns tend to outperform ahead of an earnings announcement, and underperform afterward.
- Six Habits Successful Investors Share – The six actions Fidelity has found that successful investors take.
AAII Sentiment Survey
Neutral sentiment rose to its highest level since the election, but all three sentiment indicators remain within their typical historical ranges. More about this week’s results.
- Bullish: 31.6%, down 5.4 points
- Neutral: 34.9%, up 4.6 points
- Bearish: 33.5%, up 0.8 points
- Bullish: 38.5%
- Neutral: 31.0%
- Bearish: 30.5%
Take the Sentiment Survey.
The Week Ahead
Fourth-quarter earnings season continue to stay busy with 109 members of the S&P 500 scheduled to report. Included in this group are Dow Jones industrial components: Apple (AAPL), Exxon Mobil Corp. (XOM) and Pfizer (PFE) on Tuesday and Merck & Co (MRK) and Visa (V) on Thursday.
The Federal Open Market Committee will hold its first meeting of 2017, starting on Tuesday. The meeting announcement will be released at approximately 2 p.m. on Wednesday. No change in interest rates is expected. The CME’s FedWatch Tool is showing traders not pricing in a rate hike until at least the May meeting. These expectations are very much subject to change.
Elsewhere on the economic calendar, December personal income and spending and the December pending home sales index will be released on Monday. Tuesday will feature the November Case-Shiller home price index, the January Chicago purchasing managers’ index and the Conference Board’s January consumer confidence. The January ADP Employment Report, the ISM’s January manufacturing index, December construction spending and the January PMI manufacturing index will be released on Wednesday. Thursday will feature fourth-quarter 2016 productivity. January jobs data—including the change in nonfarm payrolls and the change in the unemployment rate—December factory orders and the January ISM’s non-manufacturing index will be released on Friday.
Chicago Federal Reserve bank president Charles Evans will speak on Friday.
Local Chapter Meetings
This month, AAII is publishing our popular year-end stock screen review and if you join AAII today, I’d be pleased to pass along a copy for your review.
The data in this special report is pulled from the popular Stock Screens area on AAII.com and if you’re not familiar with this free members-only service, you’d be amazed at the investment ideas it can generate.
In a nutshell, AAII Stock Screens allow you to tap into the investment philosophies of promising investment professionals as well as see the resulting stock picks. With AAII.com Stock Screens, you can choose one of our more than 60 screening approaches to build a list of winning stocks. The stock screens and investment ideas are virtually endless and the resulting performance is top-notch. In fact, over the last 18 years, more than 90% of our stock screens outpaced the overall market.
Here’s a quick peek at some of our more popular screens and their impressive 2016 returns:
Est. Rev: Lowest 30 Down screen up 44.6%…
O’Shaughnessy: All Cap screen up 41.2%…
Price-to-Sales screen up 37.8%… MAGNET Simple screen up 37.7%…
Oberweis Octagon screen up 37.1%… T. Rowe Price screen up 30.8%…
Return data as of 11/30/2016.
Join AAII Now and you’ll receive our year-end overview of the AAII Stock Screens, plus gain full access to the Stock Screens Area on AAII.com.