Don’t Forget the Dow

I don’t usually pay much attention to the DJIA. It’s a nonsense index that’s manipulated six ways to Sunday and has little following in the investment community. Having said that, the financial press reports on it all the time and the average Joe, seeing this, seems to care.

As a result, we often see weird things happen in the markets when the Dow reaches significant inflection points. The last great example of this was in the depths of the pandemic crash in 2020. President Trump, who frequently cited the Dow as a measure of his success, was understandably concerned as markets tanked.

Tweets such as this took on an ever more anxious tone as the plunging Dow approached the level it was when he took office in 2016, with tweets alternating between cheerleading the markets and goading the Fed and Congress into taking action.

When the Dow finally reached the levels at which it traded on election night 2016, the crash was miraculously over. From our March 20, 2020 post Time to Buy:

As we all know, the market closed the following session at 18,591, a mere two points above its close on Nov 9, 2016. Some coincidence, huh?

Why does any of this matter right now?  The Dow is closing in on another of those interesting inflection points: its 2020, pre-pandemic highs at 29,568.

If the folks behind the curtain have decided that we can’t handle dipping below the “everything is alright” marker, then we could get a nice bounce here.

If, on the other hand, this time really is different, that support will be breached and investors might just start panicking a little more, down to around 28,800 or lower by mid-July.

Stay tuned.

 


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