The Dow Jones Industrial Average crossed 22,000 Wednesday morning, just 154 days after 21,000 in March and 189 days after it hit 20,000 in January.
"The stock market hit an all-time record high today, over 22,000. We've picked up substantially now, more than $4 trillion in net worth in terms of our country, our stocks, our companies," President Donald Trump said Wednesday morning during an event about immigration policy. That followed a Tuesday morning tweet, in which the president complained about the lack of media coverage as the Dow seemed poised to crest a new milestone.
But this milestone is mostly a trick of the numbers. Hitting this triple-zeroed landmark says little about the economy or stock market that we didn't already know (stocks have been rising) and says more about the peculiarity of the much-cited index and the financial media, which regularly reports the Dow's movements.
The Dow Jones Industrial Average is a very old and very unusual way of tracking the stock market. For one, its construction is largely arbitrary: it is made up of 30 companies picked by a committee meant to represent the broad swathe of the American economy. It didn't include Apple until 2015. There have been no automakers on the index since 2009.
In addition, the way it is constructed gives disproportionate weight to a company's stock price in dollar terms, versus its overall value in terms of market cap.
For example, since the Dow hit 21,000 on March 1, until yesterday's close, Microsoft shares had risen almost 12%, boosting the company's value by about $59 billion, but the share price only moved from $64.94 to $72.58 and the company made up 6% of the index's gains. In contrast, shares of Boeing rose 30%, from $184 to $239, increasing the company's value $32 billion. And yet Boeing made up 45% of the Dow's gains in that time, according to data from S&P Dow Jones Indices.
In the past week, according to the Wall Street Journal, the airplane manufacturer made up 85% of the index's gains. This is both because the stock has been on a tear but also because there are fewer of its shares being traded than for other comparably-sized companies, and so its price is higher. And because the Dow's value is calculated using share prices, the index can give disproportionate weight to the smaller companies in its index.
Microsoft is worth more than Boeing, and the value of the former moved about twice as much as the latter. But because Boeing's stock price is higher it moved the index seven times more than its larger companion's even greater financial growth.
This also means that it has to keep out companies that have very high share prices until they bring them down by issuing more stock. Apple, despite being the largest publicly traded company on earth, was kept out of the index for years until it split in 2014. That split, which issued seven shares for every one share that was outstanding lowered the price of an individual share from $645 to $92. (Bringing in a new company with a disproportionately large share price would throw off the index. Hi, Amazon.)
And then there's the tradition of tracking Dow movements in points as opposed to percentages. Because of... how numbers work... each one thousand point gain is less impressive than the next, because each is a smaller percentage of the total.
So when the Dow went from 19,000 to 20,000, it was a 5.3% percent jump, and then when it went from 20,000 to 21,000, it rose 5% percent, and then from 21,000 to 22,000, a 4.8% increase.
If you want a better metric for the overall health and performance of the market, look to the S&P 500. It has more companies, and it's weighted by market cap rather than by stock price. It doesn't hit triple-zeroed landmarks as often, but when it does, they are more significant. And in case you're curious, yes, it's going up too.