The 21,000 DOW: A No-Frills Explanation

The stock market (and any desired timing of the market) is extremely complicated- but a brief rundown herein of “why?” the DOW Jones is close to 22,000 is relevant to all.

The DJIA is not the only means of measuring the American stock market, but for the sake of this article- it will be a synonym for the overall stock market.  Many would argue that other indexes are more relevant and accurate.

At the time of this writing, the DOW is at 21,800- after a few rough days.  Still, having the DOW anywhere over 20,000 is a big deal- somewhat.   By listening to all the financial reporters, it is a great cause for joy and euphoria.  Even personally, it is a good thing- as I like most citizens have some funds invested in the stock market via mutual funds et al.   Let’s look at just how high the DOW has reached, and then some basic reasons as to why it has happened.  And perhaps we can also glimpse into what the next stage may be.

The DOW’s rise over the past 30 years is nothing short of phenomenal.  In 1986, it stood at 1,792.  Thirty years later at the end of 2016, it was up at 19,500.   That is a 1088% increase overall, or 36.2% increase PER YEAR!  Certainly, that is amazing.  However, have most American public corporations had a 1000% increase in their revenues or profits in the same time?  Not hardly.   What exactly is pumping up the DOW average?

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Below are a few  (though not exclusive) reasons of the many aspects of the market’s surge over the past 30+ years:

  • Population: The number of U.S. households over the 30 year period has risen about 42%, so the market has many more investors to pull from and sell to- based on this fact alone.
  • Median income: The median income (for households) over the same period has gone up 136%.  With increased earnings come both more dollars being invested per household, but also more “fringe” households that maybe could not afford to invest in the market at an earlier time.
  • Super low interest rates (Fed and banks): Interest rates-  daily/ short term rates up to 10 year (and longer) rates- have been held incredibly and historically low by the Federal Reserve for now over 10 years.  This lines up quite well with when the stock market took off.  With bank (savings/ CD) rates so low (less than 1.0% APY in most cases), people simply cannot afford to just keep their money in their bank.  They “must” do something else, even if they need to receive just 4% or 5% per year interest return.  Countless persons (many of whom over 50 years old), have been forced into more investing in the market.  Keep in mind that today’s 10 Year Treasury rate is only 2.09%, whereas back in 1986 it was 9.19%.
  • Foreign investors in the DOW: Foreign investors now make up about 20% of the U.S. stock market; back in 2015 that set a record.  In the newer “global economy”, with more developing nations getting richer, the DOW has been able to dramatically increase buyers from overseas.
  • Automated and/or algorithmic trading: This computerized and fairly complicated trading system and software has been popular since around 2001, and some industry experts claim it has artificially propped up the overall market and stock prices.

That’s a very quick and simplified look at how or why the DOW has made it to 22,000.  I suppose the bigger question is what happens from here.   That is for each reader to decide and study, and estimate.  Are we living in a “new normal” where stock prices will just continue to soar?  Where is it 1 year from now?  By the average returns since 1986, it should be up to 29,600 !  Or, are longstanding fundamentals likely to bring forth a pending crash or reset?

The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by

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