On the business news this week: amazement at how quickly the Dow went 1,000 points, from 20,000 to 21,000. “In a little more than a month,” Tanya Rivero exults on Wall Street Journal Video. Yes, a whole 1,000 points.
But I got to thinking: what’s the real math going on here?
21,000 from 20,000 is an increase of about 5 per cent (using my skills at estimating, which I learned in grade school long, long ago). Did the Dow ever increase by more than 5% in “a little more than a month” before this?
Well, looking all the way back to January of this year, we see that the DJIA went from 19,000 to 20,000 in two months. That’s 5.26%. Of course, it was recovering what it lost in the run-up to the election.
I searched and found historical data from the Dow. I was amazed at how tough it was to find free information to download. Apparently, the Dow data is copyrighted, so here is my attribution: Copyright © 2016, S&P Dow Jones Indices LLC. All rights reserved. I hope I haven’t broken any rules. I got the data from Yahoo.
Anyway, I created a spreadsheet, added formulae to look back one month, then calculated the “one month increase” in per cent. Here’s the chart:
You may see that there are many months for which the increase was more than 5%. In 1998, there were months – many months – with more than 10% or 12%!
So? Big deal about 20,000 to 21,000. If the market were all about increases in absolute terms, then we could get excited about an increase of 1,000. But the market is driven by percentage increases: increasing one’s investment to stay ahead of inflation, save for retirement, etc.
I’m not asking for the hyper-growth of 1998, because we all remember what happened next back then. But let’s keep things in perspective.