Dow Jones finishes above 20,000 milestone for first time

media captionThe Dow Jones is trading over 20,000 points for the first time ever. What has driven its rise?

Wall Street stock markets hit a fresh record on Wednesday, with the Dow Jones Industrial Average ending above 20,000 points for the first time.

The S&P 500 and tech-heavy Nasdaq also achieved new highs, fuelled by hopes that President Donald Trump's policies will boost the US economy.

The Dow, which has nudged the 20,000 milestone during January, rose 0.8% to 20,068.51.

Investors' cash has poured into shares on hopes of tax cuts and higher growth.

The Dow had risen above 20,000 early into the trading day, prompting Mr Trump's senior adviser Kellyanne Conway to tweet that the landmark was down to "The Trump Effect".

image copyrightTWITTER

"It was definitely a milestone that the market has been focused on for really the better part of two months and you were starting to get a little bit of anxiety as to whether it was going to be surmounted or not," said Julian Emanuel, Equity Strategist at UBS.

The Dow reached its latest 1,000-point milestone two months after closing above 19,000, making it the second quickest 1,000 point rise ever.

The index rose from 10,000 to 11,000 in only 24 trading days between 29 March and 3 May, 1999, while the rise from 18,000 to 19,000 took 483 trading days (nearly two years).

Financial stocks have been a major factor in the gain - with Goldman Sachs and JPMorgan accounting for around 20% of the rise.

This is because investors believe that some of Mr Trump's policies will trigger inflation and produce a rise in interest rates.

Also on Wednesday, the broad-based S&P finished up 0.8% at 2,298.37, while the Nasdaq advanced 1% to 5,656.34 - both fresh records.

What is the Dow Jones Industrial Average?

  • It is the average value of 30 large industrial stocks
  • The index is price-weighted so stocks with higher share prices carry more weight
  • Charles Dow launched the index with only 12 companies in 1896 - General Electric is the only one that is still included
  • In 1928, it grew to involve 30 firms, which have changed over the years
image captionWall Street veteran Art Cashin joined the call to "get your hats on"

Analysis by Michelle Fleury, New York business reporter

Finally, the Dow hit 20,000 at the US market open after being tantalisingly close for weeks.

When the moment came, floor traders at the New York Stock Exchange were ready.

Long before the opening bell rang, one trader yelled 'get your hats on, get your hats on'.

He was referring to the baseball caps emblazoned with Dow 20,000 on the front.

It's a tradition dating back to the first time the Dow passed 10,000. To mark the occasion, they made hats. And the habit stuck.

Wall Street veteran Art Cashin, director of floor operations at UBS had his on.

When asked if the Dow at 20,000 matters, he answered that the publicity would make people think about their own investments and that was a good thing.

For many though today's historic milestone is just a round number. Its value is symbolic.

In part that has to do with the index itself.

The Dow Jones Industrial Average is made up of only 30 companies compared with 500 in the S&P 500. So it is far from comprehensive.

Then there is the way it is calculated.

The Dow puts too much emphasis on share price, unlike the S&P 500 which reflect its members market capitalization. As a result, a few names have the power to significantly move the index.

Make no mistake though, this will be front page news. And for market professionals, it's a moment to pop the champagne, celebrate and pull out their Dow 20,000 baseball caps because who knows when they'll be able to wear it again.

Further gains?

Tim Ghriskey, chief investment officer of financial management firm Solaris Group in New York, said: "There is a real belief that [Mr] Trump is real, he has been extremely active these first couple of days of the presidency and a change may happen faster than people had thought."

Neil Wilson, senior market analyst at London brokers ETX Capital, said: "It's psychologically huge and, after a bit of pullback ahead of the inauguration, really confirms that the 'great rotation' from bonds to stocks is definitely upon us.

"Fears about protectionism are running second to optimism about inflation and growth - for now at least.

"The question now is how long can this last?

"Mr Trump's first steps as president have confirmed much of what investors had hoped for and that he's extremely pro-business and light on regulation for energy and financials. That's what's driving this renewed rally.

"The other argument claims that this is a massive bubble and if this is a real rotation from bonds into stocks, ending a 30-year bond bull market, there is still a huge amount of cash piled up that could yet pour into equities and power further gains through 2017.

"It might not be too long before 21,000 is in sight."