Have you be watching the Dow Jones Industrial Average (the Dow) lately?  Last week the Dow broke through the 10,000 point barrier for the first time in a year.  Only this time it is heading up not down!  That means that the Dow has risen about 3,500 points or 60% in the last 6.5 months!  The Dow is one of several “major” US stock indices where the stock of companies can be bought and sold.  It is also the oldest stock exchange in the US having been formed in 1896.

The Dow is the index most commonly referred to by everyday guys and gals like us.  While the Dow represents less than 25% of the total value of all US stocks, about 30 companies, it is made up of major companies in the US commonly called “Blue Chip” because they are companies that have a long and solid history.  Most investors feel that the Dow is made up of a good cross section of companies so it fairly represents what is generally going on within US industry.  The first time the Dow crossed the 10,000 point mark was March 29, 1999.  It is interesting to note that March 9, 2009 marked the low point for the Dow since then, 6,547 points.   

There are of course other stock exchanges/stock indices in the US.  The most familiar and closely watch would be the NASDAQ and the Standard & Poor’s 500 (S&P 500).  The NASDAQ was all over the news in the late 1990s and start of this decade for the rapid rise and then fall following the technology “bubble burst”.  The index is made up of mostly companies in the technology business such as Intel and Hewlett Packard.  When technology companies were flying high the NASDAQ peaked above 5,000 points on March 10, 2000.  Once the “bubble burst” it fell to levels approaching 1,000 points.  On Wednesday 10/14/09 it closed at 2,172 up 71% since March 2009.  The index represents about 2,800 stocks but only 25% of the total value of US stocks.

That brings us to the S&P 500.  As its name implies the index is made up of a broad range of companies totaling 500 stocks and 61% of the total value of US stocks.  This index is the basis for many mutual funds which are commonly the instruments our 401-K programs are invested in.  The index also closed up on 10/14/09 at 1,092 a 12 year high.  Since March 9^th the S&P 500 is up about 61%. 

Are we feeling good yet?  Should we be feeling good?  There are many “experts” who say that the rise in the Dow isn’t going to hold because of underlying issues still present in our economy like unemployment and consumer sediment.  Still there are many others who believe that a 10,000 point Dow has many positive psychological implications not the least of which is that you and I can now start to believe that things really are getting better with the economy.  A lot of what happens with buying and selling stock depends on the mood of investors.  The more positive the mood the greater the likelihood that stocks will continue to be bought.  The funds generated by the sale of stocks are what companies use as capitol to invest in expansion or new equipment.  With a cool economic recovery underway the increase in the major indices may be the impetus for companies to start reinvesting in their businesses and with the wealth created (at least on paper) consumers may once again start driving the engine that is the US economy.  Once you get the ball rolling it may just be hard to stop.

If you think you might be interested in buying some stock, call the credit union and talk to one of us.  Just remember to use money that you can afford to tie up because stocks are not always readily available for resale and can lose money.

Whether or not you dip your toes in the pool remember,

It’s Only Money!

John