The Dow Jones Industrial Average climbed tantalizingly close to 20,000 points in 2016, a gaudy milestone that, while symbolic, should not by itself encourage investors in the run-up to Inauguration Day and fourth-quarter earnings reports, according to regional wealth managers.
"It's a great number, it's a great milestone, but it's something that we've been anticipating for a couple years now," Jeff Mortimer, director of investment strategy at BNY Mellon Wealth Management, said of 20,000 points. "But don't let a number change your allocation because your risk tolerance remains the same whether the Dow is 20,000 or 14,000."
The stock market realized rapid growth after President-elect Donald J. Trump's November election win. Trump's pro-business rhetoric about cutting taxes, repealing regulations and focusing more on stimulus spending helped fuel a 10.5 percent increase between Nov. 4 and Dec. 30. The Dow peaked for the year on Dec. 20 at 19,974.6 points.
"I would say that a lot of people's animal spirits are running high right now," quipped Kent W. Gladding, chief investment strategist at Washington Trust Wealth Management in Westerly.
The Dow ended 2016 with an overall 13.4 percent gain. Other major indexes also realized strong increases. The S&P increased 9.5 percent and the Nasdaq gained 7.5 percent.
Both Mortimer and Gladding think it's possible the year-end rally signaled a borrowing of gains from 2017, and are looking to fourth-quarter earnings results for more evidence about how the overall economy will react. Most companies will come out with fourth-quarter earnings later this month.
Neither Mortimer nor Gladding, however, is dismissing the idea that the bull market might be signaling a stronger economy on the horizon.
"This market has run ahead of earnings; it's possibly run ahead of a stronger economy," Mortimer said. "It's anticipating all of those things and now the economy must deliver. If it does, the market will move higher, and if it doesn't, the market will pause. But it shouldn't matter if you're properly positioned."
Investors should refrain from making any knee-jerk decisions based solely on rallies or declines, he added, saying if people missed out on the hot finish last year, they revisit asset allocations to ensure their portfolios are well-positioned.
Michael D. Ice, professor of finance at the University of Rhode Island, said he's "a little surprised" the markets seem to have discounted "the Trump-volatility factor. But maybe … the market is comfortable that he's so pro-business that maybe it will overwhelm everything else he does."
"I don't think Wall Street really cares about 20,000 points that much," Ice said. "It's good for TV and headlines, but I don't think it means a lot." •