For those of you who would prefer to listen:
A major milestone was reached on Wall Street; The Dow hit 50K. It didn’t stick. That’s not much of a surprise. The Market often back and fills after reaching new highs at big round numbers. 50K is definitely that. The achievement is significant in many ways. Stocks have rallied to start the year. And it’s been led by a new cast of characters. Tech is not one of them.
To start, the U.S. stock Market is officially measured by the S&P 500, not the Dow. It’s been the case since its inception in the 1950s. The index of just 30 “Real Economy” stocks is often referred to as “What was, not What is”. However, the Dow still has value. It’s still widely followed and referenced the world over. Besides, it’s the Dow that has helped record America’s history.
2026 has proven to be a Dow start to the year. The S&P is basically flat. After a relentless rally in Tech since 2022, the fastest-growing companies have seen their stocks stall and trade sideways to down. This, while Energy, Industrials and Consumer Staple stocks have come back to life. These are the industries which hold the companies that are benefitting from the rollout of AI. Importantly, Tech accounts for 1/3 of the S&P. It’s half the NAS.
There has been a big rotation into cheaper, more mature Value stocks. These tend to be the Old Economy stocks found in the Basic Materials, Consumer and Industrial sectors. These are notoriously Dow stocks. One might say they’re beautifully boring Blue Chips. How about this: Value is beating Growth by 10% so far. I can’t remember the last time that occurred. It’s definitely been the Dow driving Wall Street this year.
Here’s some history: The Dow Jones Industrial Average was established in 1896 by Charles Dow and his partner Edward Jones. These 2 journalists tracked stock price movements with a pencil and a pad. It was circulated in their leaflet, called the “Customers’ Afternoon Letter”. That daily rag later became the Wall Street Journal. That was a whole century after the New York Stock Exchange was established with the Buttonwood Agreement under a tree at the corner of Wall & Broad. I was just there.
At the outset, there were just 12 stocks in the Dow & Jones list. It increased to 20 in 1916, ultimately landing on 30 in 1928. The companies have changed over the decades, but the Dow index of 30 remains. General Electric was in the Dow at inception, remaining for over a century. It was kicked out in 2018. Thus removed the last of the original 12. The most recent swap brought Nvidia in, sending Intel out. That happened in 2024. Intel was added to the Dow in 1999, replacing Goodyear Tire & Rubber. This occurred as the Dot-com bubble was inflating. Buying low and selling high is the investor goal. Interestingly, the Dow index has a track record of doing the opposite. It has often bought high and sold low.
The Dow Jones Industrial Average was at 40 when first recorded in the Spring of 1896. It reached 100 for the first time in 1906. It hit a then all-time high of 381 in 1929. It crashed that October. It fell all the way back to 41, erasing all of its gains, reaching a bottom in 1932. It didn’t see a new high until 1954. It took 25 years to erase the losses from the Great Depression.
The Dow first reached 1K in 1972. A new Bull Market took shape in 1982. Dow 5K came in 1995. It took 103 years since Charles Dow created his industrial stock index to reach 10K. That was 1999, a full year before the Dot-com bubble burst. It took just 18 years to reach the next 10,000 points, hitting Dow 20K in 2017. But that jagged route came via the Financial Crisis which saw the Dow collapse down to 6600, finding a bottom in March of 2009. It was back at 10K by October.
The Dow was well on its way to 30K entering the 2020s. But a global pandemic treated stocks like a brick wall, sending the Dow reeling from 28,500 down to an 18,500 low. It didn’t stay down there long. In the wake of unprecedented Fed stimulus and news of a vaccine, Dow cleared 30K for the first time in November 2020. 40K came just 3 1/2 years later, in May of 2024. And then a mere 20 months later, it reached the 50K milestone. That happened last Friday. It’s more than doubled since the Covid low.
Despite its broad popularity and longevity, the Dow is not the best measure of the Stock Market. As mentioned earlier, that role goes to the S&P 500. Much of it has to do with its structure. The Dow is price-weighted. It was the easiest way for Dow & Jones to track with pencil and pad. That means, every $1 move for a Dow stock equates to a 7-point movement in the Dow Jones Industrial Average. The highest Dollar stocks have the most influence. Goldman Sachs, with a $900 stock price today, is the highest-priced stock in the index. It alone accounts for over 11% of the Dow. On the flipside, Verizon, Nike and Coca-Cola, with stock prices below $80, all account for less than 1% of the Dow.
Conversely, the S&P is Market cap weighted. It’s a basket of the 500 largest American companies. That means the largest companies by total value have the greatest influence in the overall Stock Market. Nvidia, currently valued at over $4 Trillion, is the most valuable company in America. It alone accounts for 7% of the S&P 500. How about this for perspective: Heading into the year, Nvidia was worth more than Walmart, JPMorgan, Oracle, Cisco, GE, Coca-Cola, Nike, Ford, McDonald’s, Starbucks, IBM and Intel, combined…think about that for a minute. Then there’s this: 20 years ago, each one of those companies was worth more than Nvidia.
The Stock Market has been the greatest wealth creator in human history. It’s basically captured America’s best ideas amongst the wisdom of crowds. It’s driven by price discovery for assets, matching buyers with sellers. It’s the purest form of establishing true fair value. By definition, innovation requires speculation. It’s about risk and reward; Taking chances. There’s no guarantees. Most visionaries see what others don’t and are willing to do what most won’t. They make mistakes. They’re not afraid to either. Importantly, they learn from them. It’s part of the deal. Things are only obvious after the fact.
The S&P 500 has averaged a 10% annualized total return for over a century. It’s rarely been a smooth ascent for stocks. The S&P has only performed within 2% of that number in 4 of the last 97 years. The highest annual return was +53% and the lowest -44%. The lesson? To get the average return, stay diversified and hang on.
Charles Dow understood the power of compounded growth and the benefits of long-term investing. He said this over a century ago:
“Wall Street is often full of people today who have been long of the Market for a month, but who have made little or no money, because they have been scared out by rumors and by small relapses. The man (or woman) who has a sense of the Market escapes this.”
Well said. Wise words back then which still ring true today.
Back to the Market
Being an investor is a lifetime of learning. It’s the only way. Market cycles have come and gone, driven by innovation, corporate evolution and economic growth. Mr. Market and Mother Nature have similar qualities. They’re going to do what they’re going to do, and it’s up to us to anticipate and execute. They have a way of dictating activity. They both command respect.
The recent rotation of Market strength has been healthy. Tech has corrected while areas that had not previously participated have rallied. The question is if it’s sustainable. Are these leadership stocks going to be able to carry the load if Tech continues to correct? Combined, they’re still smaller components of the Stock Market than Tech. We study developments closely for signals about the path forward. Ultimately, Tech will take the baton again. It’s the undeniable leader of growth. The fact is, the Market has a way of assigning excessive values to stocks and then taketh away. That’s what’s happening today.
Alphabet, the parent company of Google, issued a 100-year bond this week. There are some important things at play. First, the company is only 28 years old. Issuing 100-year debt is interesting for a still young organization. Second, what will things look like in 2126? That’s when the bonds mature. The next century will no doubt bring multiple cycles and who knows what AI will do a century from now. But that’s way down the road. Here’s how to think about it now. Demand was huge. The offering was 10-times oversubscribed. The strong demand is a clear indication that investor appetite is still strong for Silicon Valley’s AI innovators, despite the correction in stock prices. Big money is making a bet that Alphabet stays around. Who knows where the Dow is a century from now.
On this weekend, honoring our 2 greatest Presidents in this 250th year of our nation’s existence, the Dow Jones Industrial Average continues to track and measure innovation and economic progress. From the construction of the railroads, connecting the coasts, to the rise of Oil, the race to space, the advancement of the internet and now AI, the Dow has been there. The Stock Market has helped fuel the innovative companies that led the charge. Most have ultimately found themselves in the Dow. Throughout challenges of war, politics and so many other crises, the Stock Market has proven its resiliency. All-time highs were reached just this week. It’s never been easy. But there’s no question, it’s been incredibly investable.
Have a nice weekend. The Market will be closed Monday, in honor of George and Abe. Bedell Frazier will be closed honoring them as well. We will be back dark and early on Tuesday.
Mike
