The closely watched Dow Jones industrial average reached historic levels on Friday, breaching 20,000 points for the first time in a week when President Trump began to put his agenda in place.
Shortly after the election, investors dubbed a surge in stock prices the “Trump rally,” pushing U.S. stocks to new heights in anticipation that the new president would work with the Republican-led Congress to lower taxes and pass more business-friendly policies. But just as the Dow appeared ready to breach the 20,000 threshold, there was a retreat.
Then, this week, as Trump vowed to rewrite trade agreements and revive pipelines, the markets began to rev again.
For the Dow, an index of 30 large publicly traded companies, topping the 20,000 level holds more symbolic than practical value. But Wall Street has been anticipating the rise could give investors the psychological boost to keep stock prices climbing even further.
The broader Standard & Poor’s 500 and the tech-heavy Nasdaq have also been trading at record levels. The recent run-up in stock prices has added about $1 trillion in market value since the election to companies that make up the S&P 500.
Stocks staged a remarkable rebound in 2016, starting the year with massive sell-offs as investors worried about China’s rocky economy and falling oil prices and then panicked when Britain voted to leave the European Union.
Each sell-off was followed by a recovery that pushed stock prices back into positive territory. After sagging as much as 10 percent in 2016, the Dow jumped 13 percent for the year, more than half of the rise coming since the election. The S&P was up about 10 percent last year, while the Nasdaq grew about 9 percent.
The markets’ rise “becomes self-fulfilling momentum,” said Art Hogan, chief market strategist for Wunderlich. “Whether you’re an individual or an institution you start chasing momentum.”
But, some market analysts say, stock prices may have already risen too far too fast. Investors are ignoring potential stumbling blocks that lie ahead for the U.S. economy, including that the Federal Reserve is beginning to raise interest rates — it bumped up a key lending rate last week, a move that traditionally has added costs for businesses. And it is unclear whether Trump will be able to implement all of his campaign promises, including lowering corporate taxes.
The rise in stock prices has also coincided with a sell-off in the bond market, a traditional safe haven during economic turbulence. The interest rate on a 10-year government note has risen from about 1.7 percent before the election to about 2.4 percent recently as investors demand a bigger return in exchange for locking up their money for a long period. When the interest rate rises, the price of the bond falls.