If you have been to any finance website or watched the news in the past 24 hours then you are aware of the new milestone reached by the Dow Jones Industrial Average. The average closed at the highest point ever at just over 12,000. At first glance this sounds great and our markets are doing better than ever. What does this milestone really mean, and does it even matter?
While reaching and closing above 12,000 is great for news and getting people’s attention, it does not signify that our economy is blazing new trails and firing on all cylinders efficiently. While the DJIA is setting records, other widely followed indicies are not doing as well. What it means is the market in general is fairly strong, but the success is coming from a different segment of companies than the records we saw in the late 90′s.
Take the NASDAQ for instance. It has a record high of 5,048.62 set over six years ago. While the DJIA is setting records, the technology favored companies in the NASDAQ keeps that index closer to 2,340, a far cry from setting any sort of records. Even looking at the more broad-based index of the S&P 500, that index is still 13% below it’s peak. Ultimately by using these three indices together you can better see the complete picture. The DJIA is very narrow and consists of only 30 companies, which have done quite well. The NASDAQ consists of many companies, but very heavily weighted in technology stocks which are still having a tough time recovering from the late 90′s. And finally the S&P which is a more broad spectrum of 500 companies that play a major role across many different industries, and it is doing well, but still lagging the record.
You can make a general observation from all of this though, which is the economy in general is moving in the right direction, some parts are just moving faster than others. So while the news of the DJIA setting another record is great for casual investors and for optimism on the economy, just remember, there is more to the investing marketplace than 30 stocks.
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.
I couldn't agree more. The record highs and the "milestone" of 12,000 makes for great headlines, and much to rant and rave about at CNBC, but what does it really mean? If you invested in the Dow at its prior peak in January 2000 would you be in the black today? Not after inflation. Also, thee stocks were taken out of the Dow in 2001, and replaced by three newcomers. How does that change the picture? All things that you won't hear much of from CNBC.