Investors are rejoicing as the Dow Jones index, which is a general measure of the prosperity of the stock market, rose above $22,000 today. This represents a new all time high for the index, in stark contrast to Snapchat, which is struggling at an all time low. Apple's shares, which rose 5% after earnings were reported, provided a strong enough push for the index to take it over $22,000.
The Dow's Meteoric Rise.
109 days ago, the Dow was at $21,000, and few thought the Dow would rise to $22,000 in such a short time frame. But now it has, and investors who have chosen to place their money in the stock market have to be thrilled with the results.
Strong earnings reports that beat estimates have pushed stock prices up, and that, in turn, has pushed up the value of the Dow Jones. But there have to be other factors pushing up prices as well.
One of those is the jobs report, which continues to post encouraging signs of growth. Last month, private U.S. companies added approximately 178,000 jobs, emblematic of the economic growth that U.S. businesses are experiencing. In addition, the unemployment rate in the U.S. is now hovering around 4.5%, one of the lowest levels seen in the U.S. economy in ages. Those factors, along with the fact that the Federal Reserve hasn't raised Interest Rates dramatically, have helped increase the value of the U.S.
market.
Warning Signs?
It's time to be careful at this point. The market has increased at an unrealistically rapid rate and there's just no way it can make these significant leaps without taking some steps back. Don't be surprised to see a market correction within the next year, especially since the Dow reached $22,000 so quickly.
There are a few reasons why this growth cannot last. First, the Federal Reserve has kept interest rates low for far too long. Back in 2013, all I heard in my economics class was that the Fed was finally going to raise interest rates this year. Instead, they waited four years to finally raise the rates. With higher interest rates, businesses will be less incentivized to take chances and avoid making risky maneuvers.
That will lead to a general decline in valuation and spending.
Second, the rising prices of real estate in the United States need to stop. Look around. All you need to do is take a look at a house that is up for sale and you will quickly realize that the property valuations are insane. Real estate is in a major bubble right now, and eventually, these values are going to come crashing back to reality and drag the stock market with them.
I could be wrong about all this, but as an investor, I'm taking my gains and cashing them out before I lose them all.
