U.S. President Donald Trump took to Twitter Thursday night to boast after Dow Jones industrial average passed 25,000 points.
“The Fake News Media barely mentions the fact that the Stock Market just hit another New Record and that business in the U.S. is booming…but the people know!” Trump tweeted. “Can you imagine if “O” was president and had these numbers – would be biggest story on earth! Dow now over 25,000.”
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Thursday’s milestone comes less than a year after the Dow topped 20,000, and five weeks after it hit 24,000.
The president also commented that every time the Dow Jones industrial average goes up, it “means jobs, it means success, it means 401(k)s that are flourishing.”
“We broke a very, very big barrier: 25,000,” he said Thursday. “So I guess our new number is 30,000.”
But how much does the Dow’s new record actually matter for the economy?
The Dow, was founded in 1896 and is the oldest barometer of the U.S. stock market, which often makes it a focal point in stock market discussions.
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But most professional investors in the U.S. pay little attention to the Dow, which looks at just 30 stocks, The Associated Press explains. The index also doesn’t adjust for inflation and doesn’t include companies beyond the chosen 30.
Investors tend to more often follow the Standard & Poor’s 500 index, which offers a more comprehensive look at the market. But the two indexes often follow the same patterns.
Eric Kirzner, a finance professor at the University of Toronto, explained to Global News that those factors make the index inherently “flawed.”
“Things sort of take on a life of their own, people say ‘25,000, what a magic number,’ but all it is, is a number on an index, which is based on a price-weighted, flawed construction,” he said.
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The professor added that the number, while it is grabbing headlines, doesn’t mean much in the long term.
“Everybody takes notice when you hit a round number, after the initial impact of hitting a 25,000 number plays out, everything reverts to fundamentals in the economy,” he said.
Similarly, he said Canadians will take notice of the new high. Then, likely forget.
“I don’t think Canadians wake up the next morning and think, ‘Wow, the Dow is at 25, I better start buying in Canada today.'”
Kirzner said the Dow hitting 20,000 gained similar attention, but it didn’t mean much then either.
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At the time, about a year ago, other financial experts agreed that the index’s industrial average is just a number.
“In and of itself, it is just a number,” said Quincy Krosby, a market strategist at Prudential Financial. “But what it does, is it lifts market expectations, in essence, to continue moving higher.”
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In the long term, what really matters are market fundamentals such as current and expected earnings, economic growth and interest rates, Kirzner noted.
He added that what’s happening in the White House, and the Trump administration’s new tax cuts, will only have short-term effects.
— Global News reporter Rahul Kalvapalle, The Associated Press
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