Saturday, September 23, 2023

Dow Jones passes 25,000


Another sign that a general bull market continues mostly unabated, the three broad indices in the market climbed to fresh record highs Thursday, including the Dow Jones Industrial Average, which broke above 25,000 for the first time ever and closed the day at 25075.13.

The increase in the Dow Jones index, which tracks 30 blue-chip companies and combines their results, also moved from 24000 to 25000 faster than any other 1000-point climb in the history of the index, the Wall Street Journal reports.

History’s longest bull markets

The current bull market began after the last recession, in about March 2009. The US economy, however, is now in only the second-longest bull market in history. The longest one came crashing down with the dot-com bubble, after about 4,494 days of bullish trends from 1987 to 2000. So far, this bull market has been running for about 2,900 days.

Could a bubble form with this bull market? Possibly, but with math being what it is, the climbs to each 1000-point milestone get easier as the numbers go up. For example, going from 8000 to 9000 required a 12.5 percent gain in stock valuation, while going from 22,000 to 23,000 required only about a 4.5 percent gain.

Bubbles happen when valuations start to exceed actual value, basically, and key signs don’t generally indicate that’s happening this time, as earnings from sales are generally keeping pace with stock valuations, for the most part. That tends to be a sign that the rising value of companies’ stocks is supported by actual sales, not just by increases in investment income.

Investment values are also increasing, but the behavior of the market now is substantially different from what it was during the Clinton administration, with stock valuation gains being also supported today by sales increases and gains in employment.

The Wall Street Journal said ADP, the company that processes the payroll for many large corporations, reported the addition of about a quarter million jobs last month. A report today from the US Labor Department showed an increase of 148,000 jobs in December. And blue-collar workers are also starting to see gains in what has been a fairly steady climb in company value, the New York Times noted. This job growth trend began about 80 months ago.

  • Job growth totaled 2.1 million in 2017.
  • The Labor Department said the gain was 2.2 million in 2016.
  • 2015: plus 2.7 million jobs.
  • 2014: plus 3 million jobs.

Other analysts point out, however, that wages haven’t kept pace with gains in the job numbers because of how companies are “hiring” workers lately. A report in Politico shows that companies are contracting with third-party providers of labor so they don’t have to provide benefits and other employment costs for workers, who are essentially underemployed.

Some measures of a healthy economy would include more than stock prices and job growth and look at wages and the purchasing power people have, comparing the mean and median purchasing power of Americans over time. Corporations and their shares do well during times of inflation, while the purchasing power people have decreases, unless wages keep up.

And they haven’t this time—the federal minimum wage, for instance, hasn’t increased since 2009. The effects of wages not keeping up are likely not to be noticed as quickly as stock valuation, because the impact of wage stagnation on the economy is more long-term. But if people can’t buy products that corporations produce, sales aren’t going to support stock valuations and we’re going to pop another bubble.

Another trend in the US economy at the 25,000 mark is the increase in online sales. Gains in retail jobs make a big part of the job numbers from the Labor Department, and if companies shift away from brick-and-mortar stores to warehouses that fulfill orders with robots, the trend could also produce a bubble. People’s purchasing power (including the ability to pay rent) has to keep pace. Otherwise, the stock market indices are just numbers.

On the other hand, President Donald Trump, who is moving away from NAFTA, seems to want to put an upward pressure on inflation. Since inflation has been extremely low lately (or even non-existent), this might not be the right thing to do, as it would simultaneously result in stock market gains and purchasing power declines—not a sign of a healthy economy, though a good trend for investors, to be sure. We note, however, that the tax cut he just signed may increase people’s purchasing power to offset the inflation pressure, provided pending cuts to support programs don’t kill the purchasing power gains.

Again, the effects on the economy of wage stagnation are more long-term than temporary profits for investors; the key, as always, is to support wages and purchasing power with those corporate profits. I don’t know if that’s what Mr Trump has in mind as he rolls back environmental, financial, and healthcare regulations and laws.

Paul Katula
Paul Katula is the executive editor of the Voxitatis Research Foundation, which publishes this blog. For more information, see the About page.

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