NEW YORK —
Wall Street busted through its latest milestone Tuesday, when the Dow Jones Industrial Average topped 30,000 for the first time.
The Dow rose 454.97 points, or 1.5%, to close at 30,046.24. Investors were encouraged by progress in the development of coronavirus vaccines and news that the transition of power to President-elect Joe Biden is finally beginning. Traders also welcomed word that Biden has selected Janet Yellen, a widely respected former Federal Reserve chair, as treasury secretary.
The milestone is an attention-grabbing psychological threshold, and it’s an encouraging signal that the market’s rally is broadening beyond the handful of stocks that carried Wall Street through the pandemic. But the Dow at 30,000 means less to most investors’ 401(k) accounts than the fact that broader market indexes are also at record highs.
Here’s a look at how the Dow has rallied to its latest multiple of 10,000, the first time that’s happened since January 2017, and what it means for investors.
WHAT IS THE DOW, EXACTLY?
It’s a measure of 30 companies, mostly blue-chip stocks spread across a range of industries. They include tech stars like Apple and Microsoft, as well as more traditional industrial companies like Boeing and Caterpillar. Other behemoths in the Dow include Nike and The Walt Disney Co.
Unlike many other measures of the market, the most important thing for the Dow is how big a stock’s price is, not how much a company is worth in total. That means a 1% move for UnitedHealth Group has a bigger effect on the Dow than the same movement for Apple, even though Apple is worth more than six times the insurer. That’s because UnitedHealth Group’s stock price is US$336.01 versus $115.17 for Apple, due to having a smaller number of total shares.
HOW BIG A DEAL IS DOW 30,000?
It’s just an arbitrary number, and it doesn’t mean things are much better than when the Dow was at 29,999. What’s more impactful is that the Dow has finally clawed back all its losses from the pandemic and is once again reaching new heights. It is up 61.5% since dropping below 18,600 on March 23.
It took just over nine months for the Dow to surpass the record it had set in February, before panic about the coronavirus triggered the market’s breathtaking sell-off.
WHAT GOT THE DOW THIS HIGH?
The Dow’s rocket ride to 30,000 got big boosts from the Federal Reserve, which slashed short-term interest rates back to roughly zero and took other measures to stabilize financial markets, and Congress, which came through with trillions of dollars of financial aid for the economy.
The economy has improved since the pandemic’s initial shock. For instance, claims for unemployment benefits dropped from 6.9 million in March to 742,000 last week. Company profits didn’t tank as much as initially feared. And the possibility that a COVID vaccine could begin distribution by the end of the year has recently given the market more reason to be optimistic.
Among individual companies, Apple did much of the heavy lifting early in the Dow’s recovery after its price soared nearly $275 to above $500 by late August. A four-for-one stock split on Aug. 28 cut Apple’s stock price below $130, diminishing its impact on the Dow, even though its total market value continued to rise.
Since then, Honeywell and Caterpillar have provided the biggest boosts to the Dow as expectations have built for a recovering economy.
Looking over the longer term, profits strengthened sharply for most Dow companies since it first rose above the 20,000 threshold at the start of 2017. At American Express, for example, analysts expect earnings per share to bounce back from the pandemic and tally $6.69 next year, versus $6.07 in recurring earnings in 2016.
At the same time, investors today are more willing to pay higher prices for each $1 of earnings because alternatives are less attractive. The yield on the 10-year Treasury Tuesday was 0.88% compared with 2.5% in January 2017.
SO THIS MEANS MY 401K IS DOING BETTER?
Probably, but not because the Dow is at 30,000. For most 401(k) accounts, what matters much more is how the S&P 500 is performing. That’s because many, many more stock funds either directly mimic the S&P 500 or benchmark themselves against that index than the Dow.
Nearly $4.6 trillion in investments directly track the S&P 500, while another $6.65 trillion measure themselves against the index’s performance. That total of $11.24 trillion is roughly 360 times the $31.5 billion in investments that track or benchmark their performance against the Dow.
Tuesday’s rally also pushed the S&P 500 above its record high set on Nov. 16.
WHY PAY ANY ATTENTION TO THE DOW, THEN?
One thing the Dow’s final leap to 30,000 indicates is that it’s no longer just tech stocks driving the market.
Five Big Tech companies — Apple, Microsoft, Amazon, Facebook and Google’s parent company — alone account for nearly 22% of the S&P 500 by market value. That gives their movements incredible sway over the S&P 500. The Dow doesn’t even include Amazon, Facebook or Google’s parent company.
The dominance of Big Tech early in the market’s recovery is a big reason the S&P 500 returned to its pre-pandemic record in August compared to November for the Dow. More recently, with hopes rising that a vaccine or two may be arriving soon, the stock market’s gains have begun to broaden out.
The Dow is more heavily weighted toward stocks in the financial and industrial industries, which have done better than tech recently after earlier getting walloped by the pandemic.
NEXT STOP IS DOW 40,000, RIGHT?
Many strategists along Wall Street are optimistic that stocks can keep climbing in 2021, mainly because of the prospects for a vaccine. But the market is facing plenty of threats in the near term. Chief among them is the worsening pandemic, which is pushing governments around the world to bring back varying degrees of restrictions on businesses.
Bitter partisanship also means Congress is making little to no progress on delivering more financial support for the economy in the meantime. That sets the stage for a potentially bleak winter for both health and the economy.
So don’t be surprised if the Dow crosses back and forth over the 30,000 threshold a few more times.
Netflix (NFLX) stock slid as much as 9.6% Friday after the company gave a second quarter revenue forecast that missed estimates and announced it would stop reporting quarterly subscriber metrics closely watched by Wall Street.
On Thursday, Netflix guided to second quarter revenue of $9.49 billion, a miss compared to consensus estimates of $9.51 billion.
The company said it will stop reporting quarterly membership numbers starting next year, along with average revenue per member, or ARM.
“As we’ve evolved our pricing and plans from a single to multiple tiers with different price points depending on the country, each incremental paid membership has a very different business impact,” the company said.
Netflix reported first quarter earnings that beat across the board on Thursday, with another 9 million-plus subscribers added in the quarter.
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Subscriber additions of 9.3 million beat expectations of 4.8 million and followed the 13 million net additions the streamer added in the fourth quarter. The company added 1.7 million paying users in Q1 2023.
Revenue beat Bloomberg consensus estimates of $9.27 billion to hit $9.37 billion in the quarter, an increase of 14.8% compared to the same period last year as the streamer leaned on revenue initiatives like its crackdown on password-sharing and ad-supported tier, in addition to the recent price hikes on certain subscription plans.
Netflix’s stock has been on a tear in recent months, with shares currently trading near the high end of its 52-week range. Wall Street analysts had warned that high expectations heading into the print could serve as an inherent risk to the stock price.
Earnings per share (EPS) beat estimates in the quarter, with the company reporting EPS of $5.28, well above consensus expectations of $4.52 and nearly double the $2.88 EPS figure it reported in the year-ago period. Netflix guided to second quarter EPS of $4.68, ahead of consensus calls for $4.54.
Profitability metrics also came in strong, with operating margins sitting at 28.1% for the first quarter compared to 21% in the same period last year.
The company previously guided to full-year 2024 operating margins of 24% after the metric grew to 21% from 18% in 2023. Netflix expects margins to tick down slightly in Q2 to 26.6%.
Free cash flow came in at $2.14 billion in the quarter, above consensus calls of $1.9 billion.
Meanwhile, ARM ticked up 1% year over year — matching the fourth quarter results. Wall Street analysts expect ARM to pick up later this year as both the ad-tier impact and price hike effects take hold.
On the ads front, ad-tier memberships increased 65% quarter over quarter after rising nearly 70% sequentially in Q3 2023 and Q4 2023. The ads plan now accounts for over 40% of all Netflix sign-ups in the markets it’s offered in.
Netflix reported first quarter earnings after the bell on Thursday. REUTERS/Dado Ruvic/File Photo (REUTERS / Reuters)
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
Oil prices initially spiked on Friday due to unconfirmed reports of an Israeli missile strike on Iran.
Prices briefly reached above $90 per barrel before falling back as Iran denied the attack.
Iranian media reported activating their air defense systems, not an Israeli strike.
Oil prices gave up nearly all of early Friday’s gains after an Iranian official told Reuters that there hadn’t been a missile attack against Iran.
Oil surged by as much as $3 per barrel in Asian trade early on Friday after a U.S. official told ABC News today that Israel launched missile strikes against Iran in the early morning hours today. After briefly spiking to above $90 per barrel early on Friday in Asian trade, Brent fell back to $87.10 per barrel in the morning in Europe.
The news was later confirmed by Iranian media, which said the country’s air defense system took down three drones over the city of Isfahan, according to Al Jazeera. Flights to three cities including Tehran and Isfahan were suspended, Iranian media also reported.
Israel’s retaliation for Iran’s missile strikes last week was seen by most as a guarantee of escalation of the Middle East conflict since Iran had warned Tel Aviv that if it retaliates, so will Tehran in its turn and that retaliation would be on a greater scale than the missile strikes from last week. These developments were naturally seen as strongly bullish for oil prices.
However, hours after unconfirmed reports of an Israeli attack first emerged, Reuters quoted an Iranian official as saying that there was no missile strike carried out against Iran. The explosions that were heard in the large Iranian city of Isfahan were the result of the activation of the air defense systems of Iran, the official told Reuters.
Overall, Iran appears to downplay the event, with most official comments and news reports not mentioning Israel, Reuters notes.
The International Atomic Energy Agency (IAEA) said that “there is no damage to Iran’s nuclear sites,” confirming Iranian reports on the matter.
The Isfahan province is home to Iran’s nuclear site for uranium enrichment.
“Brent briefly soared back above $90 before reversing lower after Iranian media downplayed a retaliatory strike by Israel,” Saxo Bank said in a Friday note.
The $5 a barrel trading range in oil prices over the past week has been driven by traders attempting to “quantify the level of risk premium needed to reflect heightened tensions but with no impact on supply,” the bank said, adding “Expect prices to bid ahead of the weekend.”
At the time of writing Brent was trading at $87.34 and WTI at $83.14.
