I’m not a fan of the Dow. It’s a weird index whose main virtues are that, way back when, it was the financial media’s first try at measuring the US market and that, despite its peculiarities, it’s easy to calculate. It’s no longer a useful gauge of US stocks, however. So it’s never used by professionals, only by media people who have little industry background. (One caveat: the Dow indices are now controlled by the same people who own the S&P–who now have a vested interested in keeping the Dow alive, despite its drawbacks.)
Still, it’s striking that for the past six weeks 20,000 on the Dow has shown itself to be a strong point of resistance to the US stock market’s upward movement. The equivalent figure for the S&P 500 is 2260, not a memorable number.
Whether the resistance level is 20,000 or 2260 makes little economic or financial difference. Psychologically, however, 20,000 is much more daunting, I think, than 2260. This is especially so now that the US stock market has risen far above former highs.
My bottom line is that, whatever number you choose, the post-election rally has run into its first substantial roadblock. It’s also at least thinkable that the Dow is developing, at least for the moment, more relevance than I’m willing to give it credit for. This would suggest that the balance of market power is shifting away from professionals to individual investors who have little stock market experience. I find this hard to believe, but it’s something I should keep an eye anyway.