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The Dow’s surprising all-time high follows an incredibly unique year marked by a pandemic and a financial crisis, but with large stock gains.
The Dow’s surprising all-time high follows an incredibly unique year marked by a pandemic and a financial crisis, but with large stock gains.
This year’s massive and surprising year for stocks comes from a simple tactic used by millions of investors over the past few years:
When there’s fear in the market take advantage;
Hold your investments even with drops;
Buy when stocks drop.
These three parts of that simple tactic have created the unbelievable, especially during a pandemic with one of the worst economic crises of all time: an all time high, Dow 30000.
The Dow Jones Industrial Average closed above 30000 points today, Tuesday, for the first time, buoyed by an amazing upwards climb brought about by day traders and new investors.
The gauge gained 454.97 points, or 1.5% up to 30046.24 points, continuing an unbelievable winning streak that’s carried indexes on track for their best month since 1987’s rally.
This massive run has placed the Dow up over 60% from it’s COVID based March lows, when the US laid out a plan to counteract the trillions of investment losses brought about from panic selling due to the pandemic’s economic attack.
The market, not just the Dow Jones alone, seems to be in some sort of perpetually lifting spiral into massive gains, defying not only the extreme economic stress and losses, but also the entire pandemic that’s shut down the world for months on end, ruining hundreds of country’s economies.
Buying and holding
Many investors believe the reasoning behind this comes from investors’ sudden urge to buy and hold stocks more than normal.
This decade’s been very unique for investing situations, with the invent of popular fee-free trading platforms such as Robinhood, that allow you to trade without commissions, as well as trade during the day.
The sudden introduction of day trading to the stock market caused a large change, as people soon became penny pickers for stock prices, shorting stocks for quick gains, and defying the long held belief that long term investment is superior.
This new ideology was surprisingly ignored during one of the greatest opportunities for shorting ever, with the millions using Robinhood instead buying low for stocks to hold for decades.
Investment firms with millions, if not billions in cash on hand normally, now sit at close to $0, as all of their funds have gone into buying the bottom of the market, as returns have been exceptionally high, following crises.
The buy stocks and hold them strategy worked incredibly well following the 2008 crisis, and seems to be working well for this crisis as well.
Popular stocks such as EV manufacturer (and tech company) Tesla Inc and Moderna, a vaccine company have exploded recently. Tesla is up nearly 600%, while Moderna’s up 400%.
More investors in the market
Trading volume on not only these stocks, but the entire market in general has exploded, with daily options having risen from 19 million per day on average last year, to almost 30 million a day this year.
Options exchanges are congregated heavily by individual investors, with millions of new investors across Charles Schwab, TD Ameritrade, Robinhood, and others, now having access to these options.
Along with the actual investors joining firms, online investment communities across Twitter, Discord, Instagram, Reddit, and others, are exploding as well.
These new investors, most of which are considered “bulls,” due to their upwards look at markets, have also been accompanied by new “bears,” which expect downward slashes for markets.
Bears argue against the bulls’ ideas that the rally will continue with vaccine news, by bringing up the good point that these massive gains may be taken from theoretical future gains.
This would be like the 2000 tech bubble, which, in hype for all of the new technologies and buying into the future of these companies, valuations hit sky-high limits, and eventually the gains starting pulling decades into the future. That’s when the market bubble popped, and the then inflated stocks were transformed into more time appropriate valuations.
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Although economic activity and the economy of the US has improved substantially, and faster than expected, employment’s still low, and homelessness and joblessness remain at a high.
Even against these odds however, investors kept piling into the market, and money related options, like with exchange traded funds, and mutual funds, keeping the market going higher.
This gaining for the market has brought about FOMO as well, or fear of missing out, which causes many young investors to believe that they need to get into this current rally to make gains from the market.
With that added FOMO, more people pile into the market, causing prices to go up, which then causes more people to join in on the gain, eventually leading to an 8 month period of almost exclusive bull territory, doubling, tripling, and increasing some stocks by even more, such as Tesla or other high popularity stocks.
Overall, this FOMO combined with the theoretical safety of the stock market, with a buy and hold the drop thinking, has caused an insane upwards spiral of buying the dips to make gains, then buying the higher dips, keeping the train moving, causing an endless loop of gaining markets.
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