What cause DOW to climb?

source: yahoo

Looking at the chart, DOW started a gradual climb from 1985-1995, a span of 10 years.

Then from 1995-2000, the climb was exponential and extremely spectacular.

Question is, how did we achieved such a steep climb?

1985-2000

Notable technology improvement during this period (source: http://inventors.about.com):

• Microsoft windows - started the advancement of computer usage
• Web Wide Web - started the advancement of information availability and dissemination

This period is noted as the golden age of information technology.

Possible Causes

1) It is likely that with better information availability, people starts to be able to track and follow companies and economy news, allowing them the ability to value companies better. As such, companies with cheap valuations were picked up, pushing the markets higher.

2) Effects/Results of the success of financial engineering. Stock markets are pretty much driven by the financial products made available.

3) Better awareness of Value Investing through the well known success of Warren Buffett.

Most importantly in my opinion, the demand for stocks increased (source: http://www.markpeterdavis.com/getventure/2009/03/a-timeline-of-financial-technical-innovation.html):

• 1886: 1M volume
• 1961: 4M volume
• 1992: 200M volume
• 2007: 5000M volume

Note: All these are hypothesis without concrete facts to back them up.

Is the current level sustainable?

Possible yes, as more countries become affluence and their citizens start trading shares (eg. China, India).

Will we have another exponential growth?

Possibly no at this moment. Unless we have new factors that would push demand up exponentially, it is not realistic to expect DOW to keep growing at the rate experiences in the 1995-2000 period.