Big, round numbers are hard to ignore. That’s why we pay attention when the odometer clicks over to 100,000 miles, and why the world threw a party at the dawn of 2000 instead of the technical start of the millennium in 2001.
It’s no different on Wall Street. When the Dow Jones industrial average briefly crossed 13,000 last week, a milestone it hadn’t reached since before the financial crisis, people took notice.
Some observers said it was a sign of a stronger U.S. economy. Casual investors wondered whether it was time to get back into stocks after fleeing to bonds or just stuffing their money under the mattress in the terrifying economic meltdown.
But a word of caution: 13,000 is just a number.
The Dow also isn’t the best measure of the stock market. It follows 30 companies – important ones, household names, but only 30. And it’s weighted so just a handful of the most expensive stocks carry the most weight.
If Apple, whose stock has skyrocketed this year from $405 to $522, had been added to the Dow on Jan. 1, it would already be above 14,000, according to estimates last week from ConvergEx Execution Solutions.
And the Dow is certainly not the best measure of the economy. It can rise even when jobs are falling or the economy is shrinking.
Some institutional investors, such as hedge funds or private-equity firms whose employees follow the market for a living, will consider the 13,000 mark a signal to get out, not in. And 13,000 may not last. The fire-sale discounts for stocks appear to have come and gone.
The Dow has climbed back slowly since its 2009 low of 6,547.05, and its other milestones have also generated a frenzy of attention.
Plenty of analysts say the Standard & Poor’s 500, given its much broader list of companies, is a better measure of the market. While the Dow would need a 9 percent rally to reach its all-time high of 14,164.53, the S&P 500 is still 15 percent away.
It did close Friday at 1,365.74, a 3½-year high and about 200 points from its all-time high in October 2007.