The Importance of the Dow Jones Industrial Average Reaching 10,000

by | Jun 19, 1999

As a global equity analyst, I have been faced of late with many questions concerning “DOW 10,000”. Investors are curious about the importance of this number, and whether it is an indication of good economic news. For those of you pondering the same issue, I offer my official point-of-view. The Dow Jones Industrial Average (DJIA […]

As a global equity analyst, I have been faced of late with many questions concerning “DOW 10,000”. Investors are curious about the importance of this number, and whether it is an indication of good economic news. For those of you pondering the same issue, I offer my official point-of-view.

The Dow Jones Industrial Average (DJIA or DOW) is a share price weighted index of 30 industrial company stocks; the number “10,000” refers to an arbitrary, rounded level of this index. The DJIA closed over the 10,000 level for the first time ever on Monday, March 29, 1999.

The DJIA is not “the stock market”, although Dow Jones & Company (creators of the index and publishers of the Wall Street Journal) would certainly like people to think so. Most professionals measure their performance against other indices, specifically the S&P500 Index, or the Nasdaq Composite index. These indices are more diversified and include a greater number of industries.

“Dow 10,000” is largely a media story, as the number is meaningless in the absence of some context. Over the past five years, the DJIA has produced a total return of more than 200%. (This is roughly 25% annually — far better than historical averages.) This performance is very significant. Stock price appreciation is fueled by good economic news and the expectation of continued good economic news in the future. As such, the stock markets are, to some degree, leading indicators of economic health. A lot of the DJIA’s performance over the past several years can be attributed to a general decline in interest rates. Thirty year government bond yields, for example, have declined from as high as 8% to as low as 5% over the past five years.

When comparing stock market returns, it’s best to consider movements in percentage change terms. If the DJIA moves 100 points in a day, it now only represents a 1% change. Back when the DJIA was at 5000, 100 points represented a 2% change. (In another data point supporting the lack of brain cells allotted to most government officials, regulators idiotically restrict stock trading based on specific triggers set to random point movements; e.g. if the DJIA falls 50+ points, “program trading” is curbed.)

To be honest, I find it rather irritating to be asked, “How did the market do?” My first inclination is to retort “The Nikkei 225 was up one and a half percent”. This tends to elicit blank stares, so I usually add, “Oh, you mean the U.S. market! Well, the Wilshire 5000, the broadest measure of the stock markets, was up 243 points, or 2.1%.” Invariably, though, people still press me on the DJIA’s performance, in point terms. I will eventually abandon my wry attempt to educate my inquisitor and surrender: “The Dow was up 124 today.”

However, if my concession should evoke some misguided qualitative assessment (“Wow, a good day, huh?”) I can’t help but offer a more precise answer: “No not really. Just over one percent. A big move by oil companies was responsible for most of it, and the Nasdaq composite was actually down for the day.”

Andrew West is a Contributing Economics Editor for Capitalism Magazine. In 1997 he received the Chartered Financial Analyst designation from the Association for Investment Management and Research.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

Have a comment?

Post your response in our Capitalism Community on X.

Related articles

The Young in America Turn Against Capitalism

The Young in America Turn Against Capitalism

If young people worry and wonder about their retirement future, their health care, and medical needs, their chance to afford a place to live, and a reasonable possibility for their lives to be better and more prosperous than their parents, it is precisely because government over the decades has either taken over or heavy- handedly imposed itself over all these and other sectors of the American economy — and brought them to financial crisis and imbalance.

The Justice of an All-Volunteer Military

The Justice of an All-Volunteer Military

The most equitable and just sharing of the burden of America’s military is assured by its all-volunteer nature, and that conscription would be inequitable and unjust.

No spam. Unsubscribe anytime.

Pin It on Pinterest