The Dow at 20,000: Pretty to look at but not real meaningful

The Kai Ryssdal you hear on Marketplace isn’t the same Kai Ryssdal you read on Twitter, even though they’re the same person.

Radio ethics requires a less feisty, more dispassionate dispensing of facts. Twitter? Not so much.

We can debate which is the preferred persona for a journalist/anchor, but Ryssdal’s Twitter response to the celebrants when the Dow went over 20,000 today was classic economics-meets-politics.

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The silliness of all of this, of course, is that the stock market is a long-term play. That’s why people who left their money in the market during the economic collapse ended up making more money than those who pulled it out, even though those who pulled it out made more money in the short term.

For the record, the Dow closed at 9625 on the day President Obama was elected, and 8077 after his inauguration. That’s a 16 percent drop.

At the close of his presidency, however, the Dow stood at 19,827. That’s a more than 18% per year increase.

On Election Day last November, the Dow closed at 18,868. Today’s 20,000 barrier represents a 6 percent increase.

Anyone who actually knows the market knows that past performance is no indication of future results. Obama’s 16 percent drop in value over the same period of time as Trump’s 6 percent increase only tells us one thing: Markets go up and markets go down.

But up is still better than down.

  • crystals

    It’s going to be a very long four years.

    • Jerry

      Aren’t you the optimist, thinking we are going to survive 4 years.

  • John

    Someone showed me an article a few weeks ago (I can’t find it right now) that looked at the stock market over several decades. All in all, it made a really quite consistent long term growth. Drops at recessions, before eventually moving back on the trend.

    Every four years on the graph, there was an anomaly.

    Whenever a Republican was elected to the office of President, the market would jump for a few months, and then drift back down to the trend line.

    Whenever a Democrat was elected President, the market would drop for a few months, and then drift back up to the trend line.

    While past behavior is not indicative of future performance, this looks to me like the same pattern repeating itself. (Or, in other words, now might be a good time to liquidate some stock and then buy it back in a few months – or would be if I were a gambler).

    • Nobody ever lost money taking profits.

      • John

        I’m in it for the long term.

  • Mike Worcester

    Hopefully this is not viewed as a thread hijack, but I’ve always wondered why the obsession with the Dow Jones Industrial Average? Is it truly a good representation of the overall heath of the national economy? Is too much stock (no pun intended) put into its variances and ups/downs? I don’t own any stocks directly but I’m sure my retirement fund does so it’s not like I am not impacted by what happens.

    Just curious.

    • jon

      If you take any large collection of diverse stocks and average then out you’ll get a fairly good idea as to the total movement of the stock market.

      The various indexes give a different set of groupings (often overlapping).
      Dow is industrial, Nasdaq is more tech orientated, and S&P500 is all large companies…

      Focus on the dow today is just because it’s a nice big round number.

      • Dow is blue chip. On a day to day basis, a connection to the market as a whole can be dicey. Long term, it’s not. People can always use the S&P 500, but on the whole, if the Dow had a good day, so did your portfolio.

    • The economy and the market are two different things and shouldn’t be confused.

      But the market most certainly affects you if you have retirement money parked somewhere.

      At my age, most of my money is in the market. I don’t much care why a market goes up, so long as it does.

      • Mike Worcester

        Doesn’t it seem like they are though? When the Dow goes down, it’s presumed the economy is suffering, at least in the popular perception. I think of the so-called Roaring 20s. I say “so-called” because sure the markets were going great, but if you were a farmer, it was certainly not a great time.

        http://billmoyers.com/content/twenties/

        • Jerry

          I think it’s like the weather vs the climate. Just because it is cold where you are doesn’t mean global temperatures aren’t rising. In the same way, just because the market is rising doesn’t mean the economy is sound. It is one indicator. There are many others.

    • Will

      It is an awful indicator, but since it’s the only one most people have a reference for it’s the one that gets used.

    • Barton

      I have always disliked this indicator – most of them, in fact – because they keep comparing apples to oranges. Yes, they are all blue chip stocks, but they are not the same stocks that were in the DJIA back when it was started. So it always seems a fallacy to me to compare it year over year (decade over decade) when many of the original companies no longer exist.

      But then again, I’m not an economist. So it probably is silly that I get stuck on this fact.

      • Since Obama’s election, I believe only 7 companies have been changed….GM, Kraft, AT&T out, for example. Apple, United Health, and Travelers in.

  • Will

    I think Kai shows a bias on his Twitter account but he does a hell of a good job on his Marketplace show. He should at least acknowledge that the reason that the unemployment rate is low is due to labor force participation rate dropping rather than job creation. I’ll be honest, I’d rather have reporters wear their opinion on their sleeves and tell us what they really think instead of suggesting they are unbiased, I can respect Kai for that.

    • No, that’s not entirely true. There are fluctuations in employment data that’s obviously affected by labor participation rate and people dropping ina nd out of the labor force voluntarily. But to say the increase in employment from ’08 is due to that fact RATHER than job creation is just flat out incorrect.

      That said, a decline in labor force participation among younger people (non Baby Boomers) would be a sign of weakness.

      Kai’s point aren’t so much bias as knowledge, though I recognize there’s a significant part of the population that considers the two to be the same thing.

      In his field — economics and media , by the way — most are right wing.

      • Will

        As per the BLS numbers, the LFPR was steady around 66-67% from 1988-2008, in fact is was at 66% as an average in 2008. Today the LFPR is 62.7%, if we recalculate the unemployment rate holding the LFPR steady at 66% the unemployment rate would be 9.5%! Since 2006-2015 we added 22 million to the non-institutionalized population, we created only 4 million jobs, 9 million more people are getting Social Security retirement payments, leaving 9 million no longer counted in employment numbers. That’s from the BLS.

        I feel like those numbers tend to be glossed over because it didn’t fit the narrative for Obama, I am interested to see where job numbers go from here and how it’s reported.

        • rallysocks

          Me too! Alternatively, I’m sure.

        • Sam M

          How do you explain GDP growth then? I know it isn’t necessarily a direct correlation but with those numbers alone with would seem GDP would be shrinking.

          Who is to say the unemployment rate is the be all end all? What about just looking at actual jobs added? Do we know what is affecting the LFPR? Do we know that the reason for the number decreasing is negative?

          • Will

            Good questions, someone in the media should investigate that…essentially that’s all I’m asking for, acknowledge those numbers and find out why.

          • Sam M

            Yeah it’s a little scary boiling down a very complex economy and population to a few numbers.

            I also don’t like blaming or giving credit to Presidents for the fluctuations.

          • My portfolio is managed and just before the election they sent out blast to remind people to calm down, that it takes years for economic policy of presidents to work its way into the economy. They assumed Clinton would win. Then Trump won. So then the next newsletter basically said, “Party! You’re going to see the effect right NOW.”

            There’s a lot of BS in all of this.

          • Sam M

            Out of college I interned for a financial services firm for high net worth people and a guy that had been in the industry for years pretty much said as much. About all you can do is diversify as much as possible and adjust exposure as you get older. He was the designated bond guy and I’ve found they tend to be the most curmudgeonly.

  • Jack Ungerleider

    One of the reason for the steady rise of the Dow and other indicators over the last 10-15 years at least, maybe more is the influx of “stupid money” into the market. With bank interest rates for savers at essentially 0% the only way to earn any return on “savings” is to put into equity funds. As a result there is a lot of money in the market that would otherwise be in savings accounts, CDs, or money market accounts in banks. If we could return to that structure people would have a “safe haven” for their savings and the cheap credit bubbles wouldn’t form as quickly as they have over that time.

    • // that would otherwise be in savings accounts, CDs, or money market accounts in banks.

      But those are tied to interest rates and interest rates are tied to inflation. You’d still be getting hammered compared to the market even if you passbook accounts were getting 5 1/4% again.

      But parking your money all in one instrument — be it the stock market or savings account — will always be stupid if the goal is to increase wealth.

      • Jack Ungerleider

        The problem is we don’t really have a choice now. You used to be able to put some money in secured guaranteed instruments like bank CDs. That portion of your savings had little or no risk. Depending on your personal tolerance for risk you could split you retirement funds accordingly. Now you have the choice of Mutual Funds, Stocks, or Bonds. Only the bonds will have limited risk and only if they are government issued. The closer you get to retirement the more you want to protect your base from the risks of a speculation driven market.

        • Reward is ALWAYS going to be tied to risk. And it always has been.

          There’s no risk in parking your money in a savings account paying ,01%. And with low inflation, you’re not falling too far behind. But you’re not going to get ahead either.

          In ’78, we were getting 5.5% for savings, but inflation was running 11% or more. So we were falling behind.

          But, yeah, you want to protect yourself from TOO much risk as you near retirement. OTOH, if you protect it from all risk, you’re going to get killed IN retirement.

  • kennedy

    Stock market performance for the 4 most recent 2-term presidents:

    #1 – Bill Clinton (+229%)
    #2 – Barack Obama (+151%)
    #3 – Ronald Reagan (+147%)
    #4 – George W Bush (-26%)

    The above is the percent change of the Dow average over 8 years. As the post indicates, there is a lot more to this than the political affiliation of the president. But change over 8 years is a more meaningful trend than a one week change.

    • Will

      Those are beginning and ending numbers (2 points of data), try using monthly averages and your numbers will be more reliable, more accurate and very different.

      • Because the market goes up and the market goes down. They’re emotional things in the short term. And the country is nothing if not emotional at the moment. Signifying very little.

        The bottom line for most investors is “show me the money.”

        The smart investor ignores short term fluctuations in the market. There’s a reason for that. They mean nothing.

      • kennedy

        As others have said, there are many factors other than the president that affect the stock market. The beginning and end points show what changed during 8 years of leadership. Clouding the issue with different mathematical analysis seems to stretch the already tenuous link between the president and the stock market.

        This conversation reminds me of a Mark Twain quote…

        • Will

          Ask any statistician using averages over time gives a much more complete picture than 2 points which are highly variable due uncontrollable things that occur when entering or leaving office.

          Your analysis would assume that the president has 100% control over every aspect of the economy, as if market bubbles and Congress don’t exist. If you want a more informed and complete picture, then use averages.

          • Or fire up your Quicken program’s investment category, which is the best indicator. And the only one that really matters.

          • kennedy

            “…there are many factors other than the president that affect the stock market.”

            Not sure I could be more clear. And I offer no analysis, only facts.

            And back to the topic of the post, is a one week change in the stock market more or less significant than an 8 year change?

          • It depends on what you want the stock market to do; that’s the complexity here.

            If you want the stock market to be a political tool, then both are significant since political tools aren’t particularly sophisticated; the’re bent and shaped and spoonfed to people who are willing to believe whatever their tribe wants to believe. So a one week tool is as valuable as an 8 year tool if that’s the purpose.

            In terms of what the stock market actually IS, it’s also an unanswerable question. It’s for the buying and trading of stocks. For MOST people, a market going up is better than a market going down. But not always. There’s money to be made by short selling and a falling market is an opportunity to make lots of money and, mostly, it doesn’t matter if its 8 months or one week. By any means necessary.

            In the matter of the original post, as I said, it has NO significance either way. It’s just another tool in the endless political debate.

            The only real question the stock market can answer is this one: Am I making money?

            I’ve made money in the last 8 weeks. I made money during the Obama administration.

            The world isn’t always an either/or place.

    • Also note there’s nothing in the piece to justify the headline.

  • Credit Warrior

    I have been in the market in one way or another since 1980. I agree that it makes sense to plan a long term strategy to increase ones savings. I have averaged just 8.13% increase over the past 37 years. For most that are in the market mutual funds are a safe investment with varying degrees of risk. I also read daily about different sectors in the markets looking for short term opportunities. I will buy stocks when others are selling off. I look for companies that are expanding. I look for companies that have new technologies. There are so many opportunities that most miss or are afraid to invest. 80% of my savings is in mutual funds and the other 20% is the money that I invest in opportunities that has a higher risk/higher reward. I have a very financially comfortable retirement which could not have happened if I put my money in the bank.