For the First Time, the Dow Trades Above 45,000. Rethink What Makes It a Milestone

The Dow Jones Industrial Average reached the 45,000 mark for the first time on Friday, extending its 2024 rally that has propelled major stock benchmarks to a series of record highs. However, the index fell short of closing above this milestone, highlighting the diminishing significance of the once-celebrated 1,000-point benchmarks as they now represent progressively smaller percentage increases.

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The 45,000 level, while noteworthy, is "not necessarily a psychologically important milestone," noted JJ Kinahan, CEO of IG North America and president of Tastytrade, in an earlier interview. Instead, it serves as a reflection of the strength of some of the largest companies in the U.S. economy and their role in lifting the broader market, he explained. "The rising tide does have a tendency to lift all boats," Kinahan said.

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During Friday’s shortened trading session, the Dow climbed as high as 45,071.29 before finishing the day up 188.59 points, or 0.4%, at 44,910.65. This marked its 47th record close of 2024 and brought its year-to-date gain to 19.2%. The S&P 500 also posted a strong performance, rising 0.7% to achieve its 53rd record close of the year, with an impressive 26.5% gain for 2024. The gains occurred in thin trading conditions, with U.S. markets closing early at 1 p.m. Eastern following Thursday’s Thanksgiving holiday.

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If the Dow had closed above 45,000, it would have achieved this milestone just 13 trading days after surpassing the 44,000 mark on November 11, according to Dow Jones Market Data. This would have been the third-fastest 1,000-point milestone climb in the index's history, even though it represents a modest gain of just 2.2%. The fastest milestone leap occurred in 2018, when the Dow surged from 25,000 to 26,000 in just eight trading days, representing a 4% increase.

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The Dow tracks the performance of 30 large-cap U.S. companies, and its composition has evolved significantly over the past century. The index has undergone more than 50 component changes, with the most recent adjustment being the replacement of Intel Corp. with Nvidia Corp., as Nvidia cemented its status as the world’s most valuable company thanks to its dominance in the AI sector.

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Over the decades, the Dow has shifted its focus, reflecting broader economic trends. Kinahan pointed out that the Dow's weighting of technology stocks has increased substantially. "In the 1990s, the Dow was all about manufacturing and autos," he said. "Now it’s changed significantly to reflect the companies that are making the biggest difference in the economy."

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Despite its long history and status as one of the most widely recognized stock market indices, the Dow's crossing of 1,000-point milestones generates less excitement today. The reason lies in the smaller percentage gains required to achieve these milestones. Matt Stucky, chief portfolio manager of equities at Northwestern Mutual Wealth Management, emphasized that percentage gains are a more meaningful measure of market performance than the index’s absolute levels. "Each additional big round number is less material because the percentages are less than what they were," he explained.

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In recent years, the percentage gains needed to achieve each 1,000-point milestone have declined significantly. For example, since the Dow surpassed 40,000 earlier this year, each additional 1,000-point increase has represented less than a 3% gain. This contrasts with a roughly 5% gain per milestone in 2017 and around 10% in the late 1990s, according to Dow Jones Market Data.

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Given these diminishing returns, some analysts suggest that investors focus on broader milestones, such as 5,000-point intervals, to better gauge meaningful progress. If this approach were adopted, the next significant milestone—Dow 50,000—is only an approximate 11% increase away.

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While 1,000-point milestones may have lost some of their allure, the Dow’s performance still serves as an important barometer of market sentiment and economic strength. Its ability to repeatedly reach new heights underscores the resilience and growth potential of the U.S. economy, driven by innovation and strong corporate performance.

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Overall, the Dow’s journey to 45,000 reflects more than just a number; it captures the evolving dynamics of the market, where technological advancements and shifting economic drivers continue to shape investor behavior. As the index climbs, it serves as a reminder of both the market’s achievements and the changing metrics by which those achievements are measured.

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