The Day the Dow Broke the 5,000-Point Barrier
On this day in stock market history...
The Dow Jones Industrial Average first reached 5,000 points on Nov. 21, 1995, nearly 23 years to the day after it broke the 1,000-point barrier. This fourfold increase in value produced a 7.3% annual growth rate for investors whose portfolios had tracked the movements of America's most-watched stock index during that time. However, the Dow's real growth had only begun in 1982, when the Dow broke a bear market and finally put 1,000 permanently in its rearview mirror after a decade of stagflation. Over a 13-year stretch from 1982 to 1995 -- despite a catastrophic one-day crash in 1987 -- the Dow posted annualized growth of 13.2%.
"The surge in stock prices this year, which caught many experts by surprise, has resulted from a powerful mix of falling interest rates, strong corporate earnings and a tidal wave of cash into mutual funds and retirement plans," wrote The Washington Post to commemorate the occasion. The Post went on to say that "the stock market's dizzying rise this year has created more financial wealth for Americans than in any previous year... the total value of the shares traded on the three major U.S. stock exchanges increased by $1.5 trillion through Oct. 31."
This surge, which had generated a 37% gain in the Dow for the preceding 52-week period, led to some bold predictions. Edward Yardeni, chief economist at C.J. Lawrence, told reporters that he saw "10,000 by 2000," or a five-year double. Surprisingly, he was a year late -- the Dow would hit the 10,000-point level in early 1999. Yardeni undermined his own bullishness by predicting a widespread profit decline, and a possible recession, for 1996. Even when you're right, you can still be very wrong.
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