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What’s So Special About Dow 20,000?

The prospect of the Dow reaching the magical target of 20,000 has generated countless headlines throughout the media. Dow 20,000 would represent a new all time high for the index, but is there any other significance that garners it so much attention? Dow 19,999 would also be a new all time high for the index, however for some reason it is not getting the same play in the headlines. So why has Dow 20,000 become the go-to number for headline makers across the financial landscape? There is no deeper meaning than the fact that it is a catchy, easy to remember price target that creates excitement in the market and in the media. It serves as a symbol, representing the post-election rally that has taken many investors by surprise.

While Dow 20,000 promisingly serves the media’s purpose of creating exciting headlines, the number itself is in fact arbitrary. There is just as much reason to get excited about Dow 19,999 or Dow 20,001. Both of which would be new all time high’s for the Dow. To further delegitimize the excitement surrounding Dow 20,000, one might look at how the Dow Jones Industrial Average actually tracks the stocks within it.

When the Dow’s daily movements are cited, it is commonplace to think of it as a broad indication of how the overall market is faring. For an index to gain such credibility it must cover hundreds of stocks and have an extremely logical way of weighting each individual holding to ensure accurate tracking, right?

Well, no.

The Dow is composed of 30 companies. The price movements of each company are added up and then divided by the ‘Dow Divisor' which takes into account stock splits and reverse splits for continuity. What is not taken into account is the market cap of the companies or the nominal value of their shares. This means the Dow would be down in the following scenario: Exxon Mobile’s share price went up $10, an increase of 11.1%, and a nearly $42 billion dollar increase in market cap. Goldman Sachs share price fell by $11, a decrease of 4.5%, and a change in market cap of only $4.4 billion. The Dow would be down in that scenario because it only takes into consideration the nominal change in a share price. The larger company Exxon happens to have a share price of $90, meaning the change in the intraday share price is likely to be much smaller than Goldman Sachs who trades at $244 dollars, but that does not matter to the Dow.


Besides Dow 20,000 being an arbitrary new all time high number, the Dow itself is not an effective measurer of overall market health or movements. The headlines sensationalizing the figure only stand to stir up excitement and viewership for the media companies. Reaching a new all time high is a significant step for the market, however we may be better served by focusing on the S&P 500 or the Russell 2000. 

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