The Dow Jones Industrial Average’s close above 30,000 for the first time in history underscores the underlying strength of the U.S. economy and hopes for a complete recovery from the ravages of the COVID-19 pandemic.
On Tuesday, the Dow rose more than 450 points Tuesday to close at 30,046.24, a record for the 30-stock blue chip index. The S&P 500, a broader gauge of the market, and the Nasdaq Composite also gained. Barring another shutdown as the number of new coronavirus infections increases as winter approaches, the market’s rise signals good things ahead for the economy.
“In my view, the 30,000 figure just confirms underlying forces: near-zero interest rates for the foreseeable future, a Biden Phase 4 package near $1 trillion, at least three and possibly six successful vaccines widely administered by April, plus cheap do-it-yourself tests,” Gary Hufbauer, an economist at the Peterson Institute in Washington said in an emailed response to Newsweek.
He said the outlook for 2021 is excellent.
“All this adds up to a recovering economy, unemployment below 5% by year-end 2021, and high earnings multiples for share prices,” Hufbauer told Newsweek.
The record Dow close is also good news for companies planning to go public.
John E. Fitzgibbon, Jr., owner and publisher of IPOScoop.com in Rahway, New Jersey, said a strong broad market means more Golden Unicorns, or companies valued at more than $1 billion, will go public.
“To gauge the IPO market, keep your eye on the tape,” he told Newsweek. “If you have a good stock market, you’ll have a good IPO market.”
Golden Unicorns expected to go public soon include Airbnb, an online vacation rental company, DoorDash, an on demand prepared food delivery service, and ContextlLogic, an online service to help shoppers find competitive prices and share information with friends.
Strong new companies generate hefty returns for investors who get into the IPO early, diversify the economy and often change the way we live. Amazon.com, Apple, Intel and Microsoft were once unproven companies launching IPOs.
The Dow closed within a few points of 30,000 in January before the shutdown intended to curb spread of the coronavirus pandemic pummeled the economy. Consumers started cutting back in March, forcing major retail chains into bankruptcy and throwing millions of people out of work. Unemployment peaked at 14.7% in April after dipping to a 50-year low of 3.5% before the pandemic.
Development of COVID-19 vaccines by Pfizer, Moderna, AstraZeneca and others create the hope that the pandemic will abate and the economy can soon return to normal. But it’s unclear how quickly the vaccine can be distributed or how many will get the shots.
In response to the pandemic, the U.S. Federal Reserve slashed interest rates to encourage investment and consumer spending. It also pumped billions into the system to keep the economy from freezing up. The Fed’s actions appear to have paid off. For example, existing home sales increased for the fifth month in a row in October to a seasonally adjusted rate of 6.85 million.
The Dow rose after President Donald Trump said he would work with President-elect Joe Biden to assure a smooth transition of power. Investors crave stability. However, the coronavirus pandemic appears to have accelerated the split between those with high-paying jobs who can work from home and people with public-facing jobs, such as those in retail or hospitality industries, which were hit hard by the pandemic.
Manish Shah, CEO of Miami Beach-based Tollbooth Strategy, added a caution about the Dow’s record close.
“The market rally that has propelled the Dow to a new record only confirms that in the current public health crisis that the big and established businesses benefit while the small and emerging perish,” he told Newsweek. “This trend only accentuates the growing inequality in wealth and in income.”
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