For the first time in 30 months, the Dow Jones Industrial Average rose above 12,000 this week. And, yeah, it’s kind of a big deal. A rise in the stock market speaks to the confidence investors have in our economy—it tells us that the pros are optimistic about the potential for a strong rebound in employment, GDP, and maybe even the housing market. But...
Why We’re Not 100% Sold.
This news comes amidst other signs that the economy may not be back on track quite yet. There's global unrest in Egypt, wild weather patterns in the U.S. and abroad, not to mention still high unemployment and growing national debt. All of those factors impact our economy.
Another tip: The Dow only follows 30 companies that are hand-selected. Recently, some weaker businesses were swapped out for some healthier ones, which may artificially bolster the score. The S&P 500 may be a better gauge of the economy because it considers 500 companies instead of 30 (or better yet, check the Russell 2000). The S&P also happens to be doing its best in over two years, which is positive news. Still, the Dow 12,000 is still 18% below its all-time high in 2007. And given the fact that it's risen astronomically recently (85% in the last 22 months), there are no guarantees that this streak will continue indefinitely.
What It All Means.
We don’t recommend that you run to tweak your portfolio because of this news. Investing is a long-term process, so don’t put your money in the markets unless you won’t need it back for at least five years. If in doubt, refer to your investing plan, stay the course, and don’t get distracted by the sometimes crazy ups and downs of the stock market.
The Wall Street Journal: Dow 12K: Some Compelling Factoids
ABC Money News: Stocks Mixed a Day After Dow Tops 12,000
CNN Money: Dow 12,000? Who Cares?
DailyFinance: Dow 12,000: Still Well Short of Record
Christian Science Monitor: Why the Dow Jones average finally closed above 12000