Now that the Dow Jones Industrial Average has made headlines by crossing the 40,000 level for the first time ever on Thursday, what comes next? History shows the 128-year-old-average tends to pull back a bit after crossing large, round number thresholds.
Research looked at all the round number thresholds from 39,000 back to 1,000 in 1972 and found the index tended to rise a bit more after surpassing a 1,000-point milestone before eventually pulling back over the ensuing 25 days. The declines averaged about 6%. "Large, round numbers have typically been a cause for concern for investors, implying important levels of resistance,"
's chief investment strategist Sam Stovall wrote in an April report anticipating the Dow at 40,000. "History tends to confirm that the market typically takes a breather after eclipsing millennium milestones." However, Stovall also noted that 64% of these declines going back to 1972 can be characterized as "noise" because the retreats were less than 5%. A "pullback" has occurred 26% of the time, equating to a decline between 5% and 9.99%, the data shows.
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