This post will not be long, and there won’t be much analysis. Why?
Because, the Dow hitting 20,000, or Dow 20K, as some like to say, is not that important. The reality is that Dow 19,823 is not really any different than Dow 20,107. Round numbers are not magic.
So, what’s the big deal?
Why Does Dow 20K Matter?
I’ve noticed an increasing number of financial publications describing the Dow Jones Industrial Average hitting 20,000 as a “psychologically important” milestone. In other words, it matters for really cool newspaper headlines and not much else.
Remember, the Dow is just 30 stocks. Those 30 stocks are all large, U.S. companies, and they change them from time to time for numerous reasons, including when that stock just isn’t very good anymore. In other words, it isn’t really representative of much of anything. But, like a fake credit score from Credit Karma or the like, it is a useful way of getting a general idea of whether stocks are going up or down, and to a lesser extent, by how much.
This is why the news often states, “The Dow was up 50 points today…” It’s a quick, no effort, way to say that stocks did good, or bad, or just about the same.
That being said, the Dow is the most widely known stock market indicator. People who have no stocks, and who couldn’t tell you the difference between an index and a mutual fund, know about the Dow, and that it is good when it goes up. And, so a big, fun, round, easy number like 20,000 is a nice feel good level, even if literally dozens of other indicators would be a better measure of how the market is doing overall.
So, enjoy your Dow 20,000 headlines. Heck, throw a party, if you like. (You should never pass up an opportunity to celebrate.) But, keep those stocks firmly planted in your well-diversified portfolio, and try not to notice that with this new “magic level” everyone seems more worried, than exuberant… we’ll talk about that later.