The Compound and Friends - The Dow Jones Smashes One Record After Another (with Josh and Michael)

Episode Date: January 16, 2020

Josh here - Michael Batnick and I discuss the recent milestones for the Dow Jones Industrial Average and the incredibly slow grind that's gotten us here. According to the Wall Street Journal "hasn’t moved 1% or more in either direction since mid-October, its sixth-longest streak since the end of 1969 and third-longest since the end of 1995." We ran the numbers and looked at the absolute change in daily stocks prices. It turns out that on a rolling 30-day basis, stocks have almost never been this calm. 1-click play or subscribe on your favorite podcast app   Subscribe to the mini podcast on iTunes or Spotify    Enable our Alexa skill here - "Alexa, play the Compound show!"   Talk to us about your portfolio or financial plan here:  http://ritholtzwealth.com/   Obviously nothing on this channel should be considered as personalized financial advice just for you or a solicitation to buy or sell any securities. Please see this 3,000 word terms & conditions disclaimer: https://thereformedbroker.com/terms-and-conditions/ Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey everyone, I'm downtown Josh Brown. We are live from the compound. I'm here with Michael Batnick. As usual, we're going to talk about Dow Jones milestones and the grinding higher that we're seeing in the S&P 500 with very little volatility. Stick around, let's see what's happening. Okay, Mike, let me just start off. This is from the Wall Street Journal. The S&P 500 hasn't moved 1% or more in either direction, up or down, since October, which is the sixth longest streak without a 1% or more day since the end of 1969. And the third longest...

Why 1969? 69. Actually, today is the 69th day. So we've already surpassed or we're getting close? No, I'm just saying, you said 1969. It's the 69th day. Look at that. And the third longest streak since the end of 1995.

So in English, we really have very rarely been in periods like this where for four months, stocks are trending higher and there are no plus or minus 1% days for the S&P. How is an investor to feel about this grind? It's obviously working out in their favor, but what's your take? I think this is a feature of bull markets, is you tend to not see the giant euphoria. What would be the reason that stocks

are to go up 3% in one day and then up 4% the next day? People don't usually panic buy. So this is like characteristics of a bull market. So to your point, third longest streak since 1995. It's unusual because there is so much volatility on a day-to-day basis in the world, geopolitically. In the headlines.

The news, the headlines. There's a lot of headline volatility. And feelings. So it feels like there's a lot of volatility, but if you're just looking at the market, it's basically dead. It's not going anywhere. So I made this chart.

So if you take the 30-day average of the return, just up or down. So the S&Ps move up or down. So just it's changed. Okay. It's like basically as low as it gets. Like this is as low as we've seen. On a rolling 30-day, it doesn't usually get much lower than this. And this chart happens to match the VIX pretty well, which is at 11 right now. Yeah. So the VIX has been squashed and the amount of 1% days have been squashed. But you said something interesting. Investors don't panic buy. Right. Like if you say, why all of a sudden would we get a day

where the S&P goes up 2%? The answer would be if it had dropped 10% the week before and then a trade deal was announced. Like that's what would make, but because we're not having the downs and the big one day drops or one week drops, of course, we're not having the one day pops of 1% or more. And those plus or minus 1% days, I think you'll agree, are clustered together typically when you see them plotted. Yes, I would agree. So it's just, it's odd because the bombing in the Middle East on Tuesday night, futures

were down almost 2%. Market was, I think, up a little bit the next day. It's just, it's not moving much in either direction. Okay, so just to pivot a little bit, I saw my friend Art Cashin posing with Peter Tuchman, the Einstein of Wall Street, in their matching Dow 29,000 hats on Instagram. I love both those guys, by the way.

The Einstein of Wall Street because of his hair? Because of his hair. That's like his trademark. So when you see a picture of a New York Stock Exchange trader, he's the guy. It's the guy with like the puffs of white hair on the side of his head and the mustache. Yeah. With like the most expressive face in the universe. Like every time they're like, traders on the floor, it'll be a picture of Tuckman.

Tuckman's an awesome guy. All right. So, but I saw them in their matching Dow 29,000 hats and I was like, wait a minute. I feel like two weeks ago they had Dow 28,000 hats. So I wanted to talk a little bit about how a thousand Dow points really ain't what it used to be and the milestones should come faster

the higher the Dow is mathematically because the percentage gain of the Dow is getting smaller and smaller between these milestones. And you put up a chart about this on our Slack. What is it showing? So as you go from 1,000 to 2,000, obviously that's 100% gain. As you go from 2 to 3, the numbers just keep, the percentages just keep getting smaller. 50% gain.

They just keep getting smaller and smaller. So right now we can go from 29,000, which we just broke, to 30,000. And it's a 3.4% difference, which is a big deal. Which is an average monthly return. So we know that these round numbers

are fairly meaningless, but I think that the general investing universe might believe otherwise. I got an email this morning. Is there a study of what happens when the Dow crosses a milestone? I seem to remember the whatever, whatever. But like, these are things that people think matter when they really don't. Yeah. So like when you cross above or below 10,000, it's momentous. 20,000, it's momentous,

not because mathematically it's meaningful or economically. Do you remember Dow 20,000? No. Like we were flirting. I did. Like three years ago? No, I'm saying we were flirting with it for like, I feel like two months. Yeah. And we just couldn't get above that number. And then we were at 24,000 like weeks later. Yeah. So that's an interesting thing. So now like, look, if you do hit 30,000, whether it's this year, next year, or not for 20 years, whatever it is, when that moment

arrives, there'll be a ton of media coverage. But we're at 29, too. Like not that much money will have been made between now and that milestone. I think the other thing on this, and people always say, oh, you should focus on the S&P, The Dow is blah, blah, blah. But we know over long stretches of time, they actually end up matching the S&P and the Dow. And the S&P just broke 3,000 recently. It's the same thing. But for all intents and purposes, it's big US stocks. But I think that it's a little foolish to say that the Dow doesn't matter because that's what people are reading. The news talks- That's my opinion. The news talks in Dow points.

So maybe I stole that from you. Maybe you stole it from me. It's the people's index. So the Dow, and I'll tell you another thing about that. The Dow is the thing that people remember moments in their life when it crossed a certain level. Nobody remembers like S&P milestones. Has anybody ever asked you what the S&P did today?

No. And when they say, what the S&P did today? No. And when they say, what did the market do? If you don't give them an answer in Dow points, they look at you like, what the hell are you talking about? Yeah. So if I say the S&P went up two handles today, like the S&P went up 16 today.

Yeah, NASDAQ was up 45. What? So if you tell somebody the Dow went up 300 points, in their head, they can kind of figure out, I mean, they'll be wrong, but you can see the wheels turning. They try to figure out what that might mean for them. But again, as we get up into these higher numbers, it's harder and harder. So if you have tomorrow, for example, if we're down 500 points in the Dow, most investors alive remember 500 point moves as being calamitous. A 500 point move on a 29,000 Dow statistically is meaningless. I mean, it's only meaningful

psychologically. So I think that's another interesting aspect. Let us know what your thoughts are on these Dow milestones that seem to be coming one after another. We love your feedback. We love your comments. Go ahead and smash that subscribe button for me if you haven't already, and we will be back with you soon.