Dow hits another milestone

18000

Earlier this year the Dow Jones Industrial Average breached 17,000 for the first time in its long history. We decided to take a look at previous major benchmarks in the growth of the Dow over the years and highlighted what was going on in the markets—and the world—each time the Dow hit a new 1,000-point benchmark. Now the Dow has hit 18,000, but it has not been a straight shot up since July. 

While moving from 17,000 to 18,000 is not equivalent to the first time the Dow hit 1,000, 2000, 3,000 etc., a lot has happened in the nearly six months that separated those benchmarks (see chart).

Many folks didn’t anticipate the market continuing apace. Despite the bull market that launched after the bottom of the credit-crisis low, there was an unease in the market. Equities had a panic sell-off a year prior when Fed Chair Ben Bernanke first suggested tapering from open ended quantitative easing (QE3). By July of this year the Fed was half way through tapering. While the market got over the yips of the previous year and seemed to realize tapering was not tightening, we were now more than five years into a historic bull move that many folks saw as manufactured by an activist Fed rather than reflecting genuine growth. It was clear that the market’s strength was mainly due to the accommodative actions of the Fed, both in terms of QE and the fact that the zero-interest-rate policy (ZIRP) forced risk assets into equities.

Even in the best of times, that is a long time without a major correction. Many analysts expected—from both a technical and fundamental perspective—a major down move and the month of October was looming, with some pretty scary cyclical omens.

That correction hit in earnest in October pushing the major indexes down 10% but just as quickly as it hit the market rebounded to make new highs.  All was good. The market hit new highs just as it anticipated a Santa Claus rally. On Dec. 5 the Dow set another all-time high before correcting 5% over the next seven sessions. But just like in October, the market took less time to recapture losses and set new highs than the correction lasted. So much for the market taking the stairs up and the elevator down.

17,000: July 3, 2014

While Americans were getting ready to celebrate the Fourth of July, real fireworks were going off in the rest of the world. Protests erupted in Egypt on the anniversary of the ouster of the man who recently ousted the previous dictator; ISIS was picking up strength in Syria and Iraq, Israelis and Palestinians were skirmishing in Gaza and the Russians and Ukraine were battling along its border. Despite this the markets were climbing a wall of worry to set new highs and reach the 17,000 level for the first time ever. 

The Dow first touched the 1,000 mark on Jan. 18, 1966, but could not maintain that level as the market hit a long bear consolidation phase that lasted until 1982. It wasn’t until after 1982 that the market could remain above the century mark.

Twenty-one years after first touching 1,000, the Dow hit 2,000 on Jan. 7, 1987. In July 1990, the Dow hit 3,000. It would take nearly five years for the Dow to reach 4,000 in February 1995, but by this time the go-go 90s were under way and it was a straight shot up until the dot-com bubble imploded in 2000.

 

 

16,000: Nov. 18, 2013:

This level was reached in one of the strongest years on record, but with great volatility in the second half as threats of a government shutdown and Ben Bernanke announcing plans to taper QE3 by year-end added volatility.  

Fun fact: In 1307, on this date, William Tell reputedly shot an apple off his son’s head. Analysts say going long equities was like shooting fish in a barrel with QE3 supporting the market.

15,000: May 3, 2013

Equity markets flew straight up in the first part of the year as it appeared the long awaited rebound had finally arrived.

Fun fact: 1802: Washington, D.C. is declared a city.

 

14,000: July 17, 2007

This milestone was reached just days before we lost our innocence. A few days later, two Bear Stearns hedge funds would implode, signaling the start of the credit crisis. Savvy investors knew something was wrong, but many others didn’t see what was coming until more than a year later when on Sept. 15, 2008, Lehman Brothers went under. It would take nearly six years, until January 2013, for the Dow to return to the 14K mark.  

Fun fact: 1955: Disneyland is opened in Anaheim, Calif., by Walt Disney.

 Image courtesy of the Orange County Archives 

13,000: May 25, 2007

It was at this point when analysts were debating whether this was a new secular bull market or whether we returned to the days of irrational exuberance. Few people know that doom was on the horizon. The Dow would not reach this level again until February 2012.  

Fun fact: 1977: Star Wars (later retitled Star Wars Episode IV: A New Hope) debuts in theaters.

 

 

 

Image courtesy of Steve Wilson.

 

12,000: Oct. 18, 2006

It took more than six years, but the Dow finally recovered ground lost in the dot-com bubble implosion.  

Fun fact: 1851: Herman Melville’s The Whale is first published in England—it will later be better known as Moby Dick.

 

11,000: May 3, 1999

It took 70 years from when the Dow Jones Industrial Average was first calculated until it hit the century mark. It took another 21 years from when it went from 1,000 to 2,000, but it took less than two months to go from 10,000 to 11,000. The Dow would not touch this level again after the 2000 crash until January 2006.  

Interesting fact: The southwestern portion of Oklahoma City, Okla., is devastated by an F5 tornado, killing 45 people, injuring 665, and causing $1 billion in damage. The tornado is one of 66 from the 1999 Oklahoma tornado outbreak. This tornado also produces the highest wind speed ever recorded, measured at 301 +/- 20 mph (484 +/- 32 km/h).

 

10,000: March 16, 1999

In 1999, we were in the midst of a new paradigm where price earnings ratios didn’t matter. Some analysts were calling for Dow 35,000, and laughing at those Chicken Littles warning of an impending crash.  

Many bears were out of the market and could go bargain hunting after the 2000 crash. The Dow would return to this level after the by December 2003.  

This date in history: 1995: Mississippi formally ratifies the Thirteenth Amendment (abolishing slavery), which was originally introduced in 1865.

9,000: Apr. 3, 1998

Things were so good and since it was determined that the market only goes up, we could afford to repeal those pesky “Great Depression” era reforms such as the Glass-Steagall Act, which prevented commercial banks from proprietary trading. What could go wrong?  

This date in history: 1968: Martin Luther King, Jr. delivers his “I’ve Been to the Mountaintop” speech.

 

 

Image courtesy of Mike Licht and the Libraary of Congress

8,000: July 8, 1997

The market doubled in two and a half years and grew by a factor of 4x in a decade.  

This date in history: 1942: The Dow Jones closes at 41.22, its lowest point during the Great Depression.

 

 

7,000: Feb. 13, 1997

The market wasn’t scared off by the maestro’s comment months earlier as it continued on its bull romp endlessly higher.  

Fun fact:The final original “Peanuts” comic strip runs in newspapers on this date in 2000; a day after Charles Schulz’s death.

 

 

 

 

Image courtesy of Andrew Kuchling

 

6,000: Oct. 4, 1996

Everyone likes a bull market but this was getting ridiculous, and it even made Federal Reserve Chairman Alan Greenspan get nervous. A couple months later he would utter his famous line on “irrational exuberance.”  

This date in history: 1582: Pope Gregory XIII executes the Gregorian calendar, causing the calendars in Italy, Poland, Portugal, and Spain to jump from Oct. 4 to Oct. 15.

 

5,000: Nov. 16, 1995

Here is where the market went from bull to hyper-bull. It took five years for the Dow to rally from 3K to 4K but less than two months for it to move from 4K to 5K.  

Fun fact: 1914: The United States’ Federal Reserve opens.

 

4,000: Feb. 23, 1995

The recession of 1990-91, which led to the election of President Bill Clinton, was in the rearview mirror, the economy was growing along with the Dow and the largest worry was potential inflation causing the Fed to raise interest rates to 6% in 1995.  

Fun fact: 1896: The Tootsie Roll is invented.

 

Image courtesy of Windell Oskay

3,000: July 13, 1990

Black Monday was years in the past and equities resumed its bull run. This was in the days when the Dow turning its speedometer meant something. I was on the floor of the CBOT bond room and all the traders in the pit stopped trading and started cheering as the print indicating the Dow hit 3000 went up on the board.  

Fun fact: 1923: The Hollywood sign is officially debuted in California.

2,000: Jan. 7, 1987

The Dow was flying in the midst of a five-year long bull market but danger was just around the corner. Seems wise to take profits after the Dow hits a milestone, as later that year it would see its largest single day drop to date.  

Fun fact: 1610: Galileo first observes the four moons of Jupiter (“the Gallilean moons”): Ganymede, Io, Europa and Calisto.

 

1,000: Jan. 18, 1966

After 70 years of calculation, the DJIA hit the 1000 mark. The celebration would be short-lived as the market would soon thereafter enter a bear phase. It would take six year for the Dow to reach that mark again, in November 1972, and then it still could not hold it. Four years later, in February 1976, the Dow hit the century mark once again only to fall back. It touched 1000 again in November 1980 but it wasn’t until October 1982 that it left the 1000-point mark in its shadow.  

Also on on this date: Robert C. Weaver was confirmed as 1st black cabinet member taking charge of  the newly formed Department of Housing and Urban Development (HUD).

About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board