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The Daily Tar Heel

Q&A with finance lecturer Allen Snively on the Dow Jones topping 20,000

The Dow Jones industrial average closed above 20,000 on Wednesday. Staff writer Jordyn Connell talked with Allen Snively, senior lecturer at UNC's Kenan-Flagler Business School, about what that means and its significance. 

The Daily Tar Heel: Can you explain what the Dow Jones industrial average is?

Allen Snively: The number itself isn’t all that important. But it’s the change in that number over time that we look at to gauge whether the health of the economy and the expectations of the investors and the consumers are good or bad.

So if the market index, measured by Dow Jones, is going up, we say that the market is growing. That implies good things about the economy and expectations and consumers. If the index is declining it’s just the opposite. We think bad things are happening. Keep in mind the market is where a lot of people’s wealth is stored.

DTH: What does closing above 20,000 mean for our country?

AS: In 2009 the Dow bottomed out at something like 7,000 or so. In the matter of about seven years we have recovered and then some. We’re up three times what we were at the worst part of the financial crisis.

DTH: Is this a milestone for our country or simply arbitrary?

AS: It’s supposed to be a leading indicator about economic growth, consumer confidence, earnings of companies. It’s a forward-looking metric, because the stock prices are based on what people think is going to happen. So if the index is hitting new highs, that’s kind of a positive statement for what people believe about the future.

DTH: Does the Dow Jones indicate a strong economy, or is it more complex than that?

AS: At a surface level, yes it does. So corporate profits are better, the capital markets are open for companies to raise capital. This is very different from where we were at the depths of the recession in 2009 and 2010: companies can borrow, people can borrow. Companies' profits are better, and their balance sheets are healthier.

We had companies in the early 2000s who had a lot of debt on the balance sheet and that restricted their financial flexibility. So think about it from a personal standpoint: if you graduate college and you’ve got $100,000 of student loans versus graduating and having $10,000. You’re much more restricted in what you can do than if you had no debt.

Companies made a conscious effort in the aftermath of the financial crisis to get their balance sheets healthy, pay down debt. So companies now are a little bit more financially flexible. The uncertainty about the administration has been lifted. Companies like markets don’t like uncertainty. But now that certainty is starting to fall in place, companies can do things.

DTH: What does Trump’s presidency mean for business? Are the two events connected?

AS: He’s a wealthy business man; he knows how to do business deals. I think he’s pro-America; he’s pro-business. So I doubt highly that he’s going to do things of a negative nature that are going to be negative towards business.

Now will he be narrowly focused or will he promote American business over a broader business mandate, taking into account some global firms and so forth? Maybe so. Maybe that may not be the most efficient. But it may be the best for America.

DTH: Are we going to be able to estimate what the economy will look like by the end of Trump’s term?

AS: There’s no way to know completely. We don’t know where he’s going to get traction, where he’s going to run into opposition or difficulty in navigating.

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