The Dow Jones Industrial Average broke the important psychological barrier of 20,000 this week. The news was greeted with cheers from the media, many advisers and investors.
Older readers may recall a similar event when the Dow broke 1000 on November 14, 1972. Here is an excerpt from the New York Times that day:
The Dow Jones industrial average closed above the 1,000 mark yesterday for the first time in history.
It finished at 1,003.16 for a gain of 6.09 points in what many Wall Streeters consider the equivalent of the initial breaking of the four-minute mile.
“This thing has an obvious psychological effect,” declared one brokerage-house partner. “It’s a hell of a news item. As for the permanence of it — well, I just don’t know.”
Last Friday, the Dow surpassed 1,000 during the course of a day’s trading, but it fell back below the landmark figure by the end of the session.
But yesterday the market was not to be denied. The Dow finally put it all together, the peace rally, the re-election of President Nixon, the surging economy, booming corporate profits and lessening fears about inflation and taxes and controls and other uncertainties of 1973.
…..International Business Machines, Wall Street’s best known glamour issue, moved up 11 1/4 points to 388, its best price of the day.
…..An office broker, watching the stock tape from his desk downtown, murmured in wonderment: “There’s a sort of renewed confidence in the whole economic outlook.”
The broker who questioned the permanence of the move must have had a crystal ball. Three months later, the Dow reversed below 1000, commencing a bear market that ended at 570.
Four years later, in 1976, the Dow again rallied and broke 1000. Only to retreat in another bear market that carried as low as 750. A third advance carried the Average above 1000 in 1981, before another retreat, this time to 780.
Only in 1982, a full ten years after the first breakout, did the Dow finally break clear of 1000, advancing strongly over the next few years.
The next significant barrier for the Dow was 10,000. Breakout took place in 1999, during the Dotcom boom, with a minimum of fuss. At least one pundit at the time predicted the Dow would reach 100,000 by 2020.
Contrary to initial indications, the 10,000 level also proved a formidable barrier, with breach of support in 2001 heralding the start of a bear market that fell as low as 7200.
Recovery in 2003 appeared robust, with two secondary corrections respecting the new support level at 10,000. But the global financial crisis in 2008 saw the Dow fall to 6500. It took more than ten years after the initial breakout before we could comfortably say that the Dow had broken clear of 10,000.
The next important barrier is the current 20,000. It may be naive to think we have seen the last of it.
If past records are anything to go by, we could be in for an interesting decade.
