Is Dow 20,000 No Big Deal?


Another big milestone and the naysayers are out in force.

When markets hit big, round numbers, technicians usually say, “never mind.”

But this time some intellectual heavyweights are, well, weighing in on the Dow Jones Industrial Average reaching the 20,000 benchmark.

Nobel laureate Robert Shiller of Yale, Mr. “Irrational Exuberance,” concedes in The Guardian that Dow 20,000 “will still have a psychological impact on the markets.”

But he calls it a “powerful illusion,” because the Dow is up only 19% in real (inflation-adjusted) terms since 2000, a gain over 17 years he calls “underwhelming.”

And Zachary Karabell writes in Foreign Policy, “The positive economic trajectory that underpinned the rise of liberalism and democracy…is clearly shifting into a lower gear—despite the recent good news from Wall Street.”

What are we to make of this?

First of all, Shiller has one more Nobel Prize than I do, and I have great respect for Karabell as a writer and thinker.

But Shiller’s famed CAPE index, which measures the market’s price vs. earnings over the last ten years, has indicated equities were overvalued in 416 of the last 422 months, according to no less a figure than Jeremy Siegel of the Wharton School.

And how does a market milestone like Dow 20,000 trigger in Karabell a bout of pessimism and weltschmerz worthy of the great German historian Oswald Spengler, he of The Decline of the West fame?

Actually, Dow 20,000 is a mere pretext for Karabell’s ruminations on the limits to growth, a meme some of us remember from the controversial Club of Rome report back in the 1970s.

And underlying much of the commentary—explicitly in Shiller’s case—is the unwillingness to attribute the market’s recent gains to the election of Donald Trump.

We will never know if there would have been a similar relief rally if Hillary Clinton had won the Electoral College as well as the popular vote, three to five million “fraudulent” voters notwithstanding.

But as I wrote here last week, the Dow and Standard & Poor’s 500 index rose more than 150% under President Obama. And as of Thursday, the indices had gained 9% since Election Day, accounting for some 1,600 Dow points.

Those gains will be illusory if Trump’s promises of more infrastructure spending and lower corporate taxes are washed away by trade wars with China and Mexico.

But already strong consumer sentiment has improved since the election and business confidence has soared. That could spur growth and improve corporate earnings, which, along with interest rates, really drive stocks.

Love him or hate him (there’s little in between), the Trump rally is for real, and should continue. At least in this area, we have to give the devil his due.