The S&P 500 index is approaching 1,000, Nasdaq is nearing 2,000, the Nikkei is above 10,000 and Dow could surpass 10,000 soon.
Welcome to the world of milestone mania, where investors give emphasis on nice round numbers.
U.S.-based wealth management firm Fisher Investments give a few thoughts on the milestones and the danger of having blind faith in them.
In ancient Rome, Emperor Augustus placed a pillar in the centre of the Forum, marking the starting point for a system of roads. The roads were marked every mile, or the distance covered in 1,000 paces (mille is Latin for 1,000), by a stone. These milestones became important markers to travellers, helping them sense the distance between two points and determine how far they travelled in relation to Rome.
“In investing, however, milestones are simply misleading. What do markets know of milestones—of beginnings, distance, and endpoints? Nothing—numerical milestones are meaningless to markets and have no historical forecasting power whatsoever,” Fisher says.
“If markets start creeping toward those higher, round numbers, don’t be surprised if technical analysis enthusiasts appear out of the woodwork, attributing vital significance to those levels—claiming reaching or not reaching those markers will show how markets will do going forward. This is faulty reasoning—ignore.”