By the Numbers

How Meaningful is Dow 11,000?


Happy Dow 11,000! The Dow Industrials is once again flirting with 11,000 today, pushing above the level right after the open. Although it briefly hit 11,000 towards the end of the day on Friday, the Dow has still failed to close above that threshold since September 26, 2008.

While 11,000 is a nice round number for the Dow, how important of a milestone is it? Sure, it’s a solid 10% rise from 10,000, a level which the Dow hasn’t closed below since February 8. Certainly a 10% move in two months is nothing to sneeze at, but upon closer examination of the numbers, 11,000 may not be as impressive as it first appears.

It’s worth noting that the Dow hasn’t truly represented the broader markets for quite awhile now, severely underperforming the other major indices over the past 8 weeks and also over the past year.

Remember, the Dow has managed to close above 10,000 for just over two months now. Take a look at its underperformance during this period:

Dow Industrials up 11.1%

S&P 500 up 13.2%

Nasdaq Composite up 15.5%

Russell 2000 up 20.0%

The Dow has also severely underperformed the S&P since both indices hit their lows in March 2009. Since that time, Dow is up just 68% vs. the S&P’s 77% gain. However, if the Dow had kept pace with the S&P’s current gains, it would hypothetically be hovering around 11,600 by now (up 77% from low of 6,547.05).

Here’s another way to put things in perspective. To achieve the same gain as the Dow’s current 68% gain, the S&P would have to cross 1,136 (up 68% from its low of 676.53) – but it first did that way back on January 5. Essentially, the S&P celebrated its equivalent of a "Dow 11,000 milestone" more than 3 months ago, suggesting that the Dow’s quite late to its own 11,000 party now.

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