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Dow bursts through 20,000, extending a rally that looked unlikely a year ago

A months-long rally has recently been propelled by President Trump’s promises of business-friendly policies. (Jan. 25, 2017)

John Bogle, the 87-year-old founder of investment giant Vanguard Group Inc., likes to recall the early advice he received about the stock market: “Nobody knows nothing.”

The point was that predicting market moves is mostly fruitless. That advice was proved right again Wednesday when the Dow Jones industrial average closed above 20,000 for the first time and broader indexes also set record highs.

The widely followed Dow average of 30 blue chip stocks hit that big, historic number to extend a months-long rally on Wall Street that few saw coming because it looked so implausible a year ago when stock prices were plunging.

Bogle’s axiom will hold true again in the coming months with the onset of the Trump administration, whose business-friendly policy proposals already have bolstered the markets but whose outcomes — and effect on the U.S. economy — remain in question.

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The Dow closed at 20,068.51, up 155.80 points, its best daily point gain since Dec. 7.

The bellwether Standard & Poor’s 500 gained 18.30 points to a record 2,298.37 and another broader measure, the Nasdaq composite index, rose 55.38 points to an all-time high of 5,656.34.

The market already was rising in the final months of the Obama administration, but the rally gained added steam with Trump’s election Nov. 8 and forecasts that corporate profits, always a key driver of share prices, would improve in 2017.

The Dow has jumped 9.5% since Trump was elected.

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Dow reaches 20,000

The Dow Jones industrial average surpasses 20,000 for the first time.

(@latimesgraphics)

It appeared the Dow would eclipse 20,000 points last month — the previous closing high of 19,974.62 was set Dec. 20 — but the market then moved largely sideways for the next four weeks before resuming its advance.

Trump’s call for tax cuts, jobs growth, less regulation, more infrastructure building and a tougher U.S. stance on trade is a key reason for investors’ optimism because those steps augur well for many companies’ earnings.

During a White House meeting with top executives of major automakers Tuesday, Trump reiterated that “we’re reducing [corporate] taxes very substantially, and we’re reducing unnecessary regulations.”

Trump also formally pulled the United States out of the Trans-Pacific Partnership, a 12-nation trade agreement negotiated by the Obama administration that Trump long has called detrimental to U.S. economic interests.

Trump benefited from arriving at the White House on Friday with the U.S. and global economies already showing improvement, and the Dow’s ability to punch through the 20,000-point mark adds more positive sentiment, said Brad McMillan, chief investment officer of Commonwealth Financial Network.

“Investors see we just cleared a big milestone, and psychology is a big part of what drives the market,” McMillan said.

After the Dow opened above 20,000 points Wednesday, some traders on the floor of the New York Stock Exchange celebrated by wearing baseball caps emblazoned with “Dow 20,000.” The day ended with a round of cheers.

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Trump responded with a simple tweet: “Great!”

The Dow industrials were led Wednesday by aerospace giant Boeing Co., which jumped 4.2% after reporting strong fourth-quarter results. Caterpillar Inc., the maker of earth-moving equipment, rose 2%, and Apple Inc. gained 1.6%.

There is a concern that the market’s gains mean some stocks are now too rich compared with the underlying companies’ earnings, which could portend a pullback if investors decide to take profits. But if earnings keep growing, that would be less of a problem.

“We’ve seen corporate earnings start to rise” and that means “there isn’t a sign of an immediate risk,” McMillan said.

There’s also the threat of higher inflation and interest rates as the economy gathers strength, which is why prices of Treasury securities and other bonds have dropped and their yields have risen in recent months. The yield on the 10-year Treasury note has climbed to 2.52% from 1.85% on Nov. 8.

A year ago, few saw the stock market chalking up big gains anytime soon.

Prices plummeted in early 2016 in response to financial woes in China, low oil prices and an uncertain outlook for corporate profits.

But as those trends largely stabilized, stocks turned back up and steadily moved higher again except for a brief setback June 24 to 27 after the British vote to leave the European Union, or “Brexit.” The fact that the Brexit-related drop was brief instilled the market with even more optimism.

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The Dow industrials have shot up 26% since Jan. 25, 2016.

The Dow surpassing 20,000 is a historic moment and catchy sound bite, but in the context of the stock market’s years-long bull run it’s not stupendously impressive.

The achievement came 17 years after the Dow first closed above 10,000 in late March 1999. And as simple math shows, as the average has continued to climb, each of its 1,000-point advances represented less of a percentage gain from the previous one.

For instance, when the Dow rose to 12,000 in 2006 from 11,000, it was a 9.1% gain. But in rising to 20,000 from the 19,000-point mark reached last November, the gain is only 5.3%.

Now that 20,000 is in the record books, some analysts suggested that investors generally make no changes to their market strategies.

“We are telling our clients you can’t time the market,” Todd Morgan, chairman of Bel Air Investment Advisors in Los Angeles, said in a statement. “Think long term. Stay the course.

“Unlike really historic events, no one is going to remember where they were when the Dow hit 20,000.”

Better-than-expected earnings helped several companies, including Seagate Technology, up 14% to $42.67 a share; Rockwell Automation, up 7.7% to $153.01; and Logitech International, up 13% to $29. 

Germany’s DAX gained 1.8%, and France’s CAC-40 rose 1%. The FTSE 100 index of leading British shares rose 0.2%. 

Tokyo’s Nikkei 225 surged 1.4% after Japan’s government said that the nation had a trade surplus in 2016, its first in six years. Hong Kong’s Hang Seng rose 0.4%. 

Benchmark U.S. crude fell 43 cents to $52.75 a barrel. International benchmark Brent crude slipped 36 cents to $55.08.

The dollar fell to 113.60 yen from 113.89 on Tuesday. The euro rose to $1.0743 from $1.0723. 

Gold slid 1.1% to $1,197.80 an ounce. Silver fell 21 cents to $16.98 an ounce. Copper was little changed at $2.71 a pound. 

james.peltz@latimes.com

Twitter: @PeltzLATimes

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UPDATES:

3 p.m.: This article was updated with additional analysis as well as various stock, commodity and currency prices.

1 p.m.: This article was updated with the close of markets.

11:20 a.m.: This article was updated with more recent market figures. 

9:05 a.m.: This article was updated with Seagate shares’ jump and other stocks’ movements, a comment from President Trump and additional background information.

7:50 a.m.: This article was updated with levels of the major stock indexes, information about the Trump administration’s recent moves and an analyst comment.

This article was originally published at 6:30 a.m.


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