The Dow Jones Industrial Average inched past 22,000 Wednesday, and the key question is: Should anyone care?
The venerable index rose 52.32 points Wednesday to close at 22,016.24, helped by Apple Inc., which surged 4.37% on a blockbuster earnings report. The Dow crossed the 20,000 threshold in February and the 21,000 mark in March.
As far as the crossing of big, round numbers goes, the Dow's latest is a piker. The change from 21,000 to 22,000 is just 4.8%. And, of course, the Dow is simply an average of 30 stocks, rather than a more diversified, capitalization-weighted stock index. Celebrating the 22,000 level is a bit of a stretch, said Malcolm Makin, president of Professional Planning Group. "It's sort of like someone looking for a reason to have a party saying, 'Look! It's Friday! The sun's out! Let's have a party!'"
Rather than concentrate on the last 1,000-point mark in the Dow — which becomes smaller, percentage-wise, each 1,000 points — investors should bear in mind that the past 10 years have been well below the long-term average, said Judy Shine, CEO of Shine Investment Advisory Services. In the past 10 years, the Dow has averaged a 5.04% average annual return, according to Morningstar — 7.86% with dividends. Large-company stocks have averaged a 10.5% average annual total return the past 50 years. "What is significant is the past 10 years has been one of the worst 10-year rolling periods in history," Ms. Shine said.
Tim McIntosh, financial planner with PVG Asset Management, thinks it's important that clients know where the market is, but that it's also important to make sure they know what the number means, especially in terms of their own portfolio. "Many clients will review this headline in the news and look at their accounts," he said. "But if they are diversified, they may feel they missed this rally. Also, since so many stocks are actually underwater this year, such as REITs, energy, telecom and retail, unless you are indexed or own FANG (Facebook, Amazon, Netflix, Google) stocks, it is misleading investors to just look at the Dow."
The question for advisers and their clients: What's next? "My clients are happy, confused and continue to persevere," said Mr. Makin. "They hope that when the correction comes, it won't be too severe.
Other advisers say the same. "There's no anxiety on the part of my clients, but I believe it's time for me to write a letter telling them to enjoy but remember that one day they will be giving some back for a bit," said Harold Evensky, chairman of Evensky, & Katz/Foldes Financial. "In the last 30 years, I've probably penned three or four letters like this."
Sam Stovall, chief investment strategist of U.S. equity strategy at CFRA, said that crossing a big round number on the down is like opening a rusty door: "They require several attempts before they finally swing open. When we have approached or marginally crossed a big number, people say, 'It has gone far enough. Time to take some profits.' And then the market has gone into a decline or treaded water."
The worry for most investors is that there could be little left to support a continued rise, especially as we swing into August and September, traditionally two of the worst months for the stock market. Nevertheless, profits are expected to rise in the second half of 2017.
Also, new highs often lead to more new highs in the market. The S&P 500 racked up 29 new all-time highs year to date through the end of July, Mr. Stovall said. "While impressive, seven other years since WWII tallied up a greater number of new highs in the first seven months of the year," he said. "Six went on to record an average July-through-December price increase of 6.3. Unfortunately, 1987 was also on this list, in which investors suffered through a 22.5% decline in the final five months of the year."