The Dow Jones industrial average sailed through 17,000 for the first time in its 118-year history Thursday, pushed across the threshold by good news that hiring in the U.S. accelerated last month and the trade deficit shrank a bit.
It was a sizable milestone, but also “an arbitrary big, round number to me,” Don Hurst, principal and owner of Hurst Capital Management in Albuquerque, told the Journal.
“I appreciate people paying extra attention when (a threshold) comes into view, but I don’t think it is a sign they should sell and run for the hills and not a sign to rush in and throw money around loosely,” he said. “I have come down on the side of its meaning … just about nothing.”
But the data that pushed it across the 17,000 mark – “these incremental small signs of positive direction” – bodes well for the market overall, Hurst said.
What drove the market Thursday was the good Labor Department numbers for June – adding 288,000 workers – and the unemployment rate dropping to 6.1 percent, he said.
“There was another good sign – the trade deficit was down a little bit,” he said.
Added Connor Browne, a portfolio manager at Thornburg Investment Management in Santa Fe: “We were excited about this morning’s employment data. While the U.S. recovery hasn’t been as robust as some have hoped, the economy certainly seems to be moving in the right direction. To us, the U.S. stock market doesn’t look too expensive today.”
Another big takeaway is how important it is to think long term about your investing, Browne told the Journal by email.
“What I think is incredible is that following one of the worst recessions in our country’s history, if you had stayed the course in your investment portfolio, it only took a few years to get back what you lost AND at this point you would have made a reasonable annualized return even if you had invested at peak market valuation pre-crisis,” he said.
From its previous peak in October 2007, the Dow has delivered 6 percent in annualized returns, including dividend reinvestment, Browne said.
“Clearly, if you had the guts to invest during the depths of the crisis, your returns would have looked just spectacular,” he said, noting annualized returns of 21 percent and a total return of 175 percent from March 2009 to the market’s peak.
Browne said it was stressful, of course, including watching the Dow drop 50 percent from its highs, but again the takeaway is pick an “appropriate asset allocation and stick to it.”
Hurst agreed that it’s all about thinking long term.
“In my opinion, the stock market has done fairly well because investors do not want to be sitting on bonds when interest rates go up,” he said. “And the yield on bonds is pretty meager. So, people are finding more value and appreciation in stocks at this point.
Hurst said he isn’t worried, because “there is no bubble at this point. There will be a hiccup in the next year, a correction, some pull back, but markets do not move in a linear fashion. They ratchet up.”
Thornburg’s Browne said he is keeping an eye on continuing geopolitical risks, some signs of bubble-like behavior in the fixed-income markets, and coming Federal Reserve rate hikes because they all have the potential to derail the recovery.
“The market seems awfully complacent these days – very low volatility. It’s often when the market seems to be least expecting it that the next bear market begins,” he said. “Since we don’t have perfect crystal balls, we always want to make sure that a portion of each of our portfolios is ready to help support overall portfolio returns if the market does come under unexpected (stress.)”
The market rose from the opening of trading Thursday after the government reported that U.S. employers hired more employees than investors and economists expected. (See Page B1 for details on the jobs gains.)
Thursday’s gains add to what has been a strong month-and-a-half for Wall Street. Along with the Dow hitting 17,000, the Standard & Poor’s 500 index is approaching its own milestone of 2,000.
The indexes have risen as a steady stream of good news on jobs and manufacturing bolsters investor confidence.
Trading was extremely light, though, and trading ended early ahead of the Fourth of July holiday today.
The Dow rose 92.02 points, or 0.5 percent, to 17,068.26. The S&P 500 rose 10.82 points, or 0.6 percent, to 1,985.44, and the Nasdaq composite rose 28.19 points, or 0.6 percent, to 4,485.93.
U.S. markets will be closed today for the Fourth of July holiday. U.S. stock trading will reopen Monday.
The Associated Press contributed to this report.