Just how long did it take the Dow Jones industrial average to hit 25,000 points?
After the Dow was founded in 1896, it took 76 years to cross 1,000 for the first time in 1972. Forty-six years after that, the Dow crossed 25,000. In comparison, the most recent milestone of 24,000 points was just 35 days ago on Nov. 30.
Investors were naturally happy about the Dow’s cracking 25,000 on Thursday with the New York Stock Exchange selling “Dow 25,000” hats (as it did for “Dow 20,000”).
And the Dow wasn’t alone: All the major indexes hit record highs, including the tech-heavy Nasdaq, the global benchmark S&P 500, and the Russell 2000 index of small-cap stocks. The S&P 500 has notched a more than 300 percent gain since the bull market began in March 2009, according to the Wall Street Journal, citing the research firm Leuthold Group, which excluded dividends from the calculation.
So what drove this record-setting rally? The tax cut — most recently — and earnings, for the last eight years, say investors.
The tax cut, according to PNC chief investment strategist Bill Stone, should provide a further boost to earnings.
“As we look forward to 2018, we believe continued global growth will be supportive of earnings from a macro perspective, in addition to stability in oil prices and a generally accommodative environment,” he said.
So what sectors are professional investors warming to this year?
Energy and technology
With the oil price sneaking toward $63 a barrel, investors are reconsidering oil and energy companies, which were among the worst-performing sectors in 2017. Oil prices closed at a fresh three-year high Thursday, as U.S. light sweet crude rose 38 cents, or 0.6 percent, to $62.01 a barrel on the New York Mercantile Exchange, the highest level since December 2014. Brent, the global benchmark, advanced 23 cents, or 0.3 percent, to $68.07 a barrel.
For investors interested in technology, there’s a handy proxy: the PowerShares QQQ Trust ETF (symbol: QQQ), in which the top five holdings are: Apple, Microsoft, Amazon, Facebook, and Alphabet.
Market guru Jeremy Grantham weighed in this week with a note to clients urging them to pile into emerging markets. Grantham, cofounder and chief investment strategist at Boston-based money manager Grantham, Mayo, Van Otterloo & Co., is a historic spotter of market bubbles. Grantham this week wrote that the relative valuations of emerging-market stocks look far more appealing than those in the U.S. markets, a view held by GMO for years. “I would own as much emerging market equity as your career or business risk can tolerate,” he noted.
The local homebuilder company Toll Brothers hit a 52-week high of $51.08 a share in December, although it closed on Thursday slightly lower, at $50.13. The company has instituted a dividend and “we are encouraged by the all-time highs in the Dow. It reflects improving confidence in the economy by investors, businesses, and consumers. Historically, that improved confidence and the increase in consumer net worth from the rise in the stock market has been a positive for housing. It seems to again be the case based on the strong recent operating results and growth in stock price for most builders, including Toll,” said Toll Brothers chief financial officer Marty Connor.
And what are investors avoiding?
Utilities and other interest-rate sensitive stock sectors
“We are avoiding interest-rate sensitive areas such as utilities, because of the possibility for faster Federal Reserve rate increases” in 2018, said Phil Gocke, cofounder of the registered investment adviser Opus Investments. “We’re also watching any increases in inflation, which could lead consequently to more frequent rate increases,” he said.
Also avoid the belief that this latest gain for the Dow is truly a big gain, the pros added.
“A Dow point just doesn’t buy as much today, with the index in the tens of thousands, as it did when it was in the mere thousands. A close above 25,000 will only represent about a 3.0 percent gain from the close above 24,000. So let’s not get all gushy over these milestone moves unless there’s really something to gush about,” said Daniel Wiener, editor of the Independent Adviser for Vanguard Investors.
For mom-and-pop retail investors still wary of the vagaries of the stock market, “this heightened press coverage probably will encourage retail investors to finally increase their equity investments. Increasing exposure to stocks at this point is not necessarily a bad thing as long as a 5 to 10 percent pullback does not cause those investors to panic, sell their newly purchased equity holdings, and monetize their loss,” said Gocke.
In other words, expect a correction.