Dow passes 20,000

The index passed 10,000 on March 29th 1999, during the height of the dotcom boom.

While the fact that it set this 20,000 record makes good headlines, the index is made up of just 30 companies, and five of these firms: IBM, Goldman Sachs, Boeing, JP Morgan and UnitedHealth accounted for 50 per cent of all rises in the index since the US election. 

Writing for the FT, John Authers argued that the media was guilty of groupthink in assigning so much importance to the rises in the Dow. But the surge in the Dow is of symbolic importance, after-all, the index was first published in the 1880's. In any case, the S&P 500 and NASDAQ have set innumerable records since last November, when President Trump won his victory. 

Recent rises in US stocks seem to correlate with announcements from President Trump concerning his plans to boost US manufacturing. Not all analysts are convinced by the rises, suggesting that the markets are largely buying on the announcement of protectionist policies which are usually considered to be bad for the economy. 

The markets are also enthusiastic about President Trump's plans to cut taxes, especially corporation tax, which may fall from around 35 per cent to 15 per cent. According to the American Association of Individual Investors, by early December bulls outnumbered bears by 28 percentage points. 

Many are now forecasting much sharper rises in inflation over the few years, and several hikes in US interest rates this year, this may be supporting stocks, although higher interest rates are normally considered negative for valuations, as they mean a higher discount rate on projected future earnings.

Meanwhile, President Trump has said he wants to see a weaker dollar, yet the greenback has strengthened since he took over as President, and history indicates a currency often rises when tariffs are imposed in the region it pertains to.

But, while there is a sense that President Trump has managed to re-ignite animal spirits within the US markets, whether they will stay alight remains to be seen.