Dow Tops 40,000 in Historic First – Forbes Advisor – Technologist

As inflation shows signs of abating, the Dow Jones Industrial Average has topped 40,000 for the first time in history.

Sparked by Wednesday’s consumer price index report—also known as CPI—coming in at 3.4% year-over-year, which was the first time this number has dropped in 2024, investors are finally seeing glimmers of slowing U.S. inflation.

On the heels of this news, the Dow Jones Industrial Average reached its new record high on Thursday morning.

How Inflation Affects the Stock Market

Wednesday’s CPI inflation news has been well received by investors since it augurs a cut in interest rates by the Federal Reserve. Lower rates, of course, mean lower costs for businesses, which typically help fuel further stock market gains.

“Breaking the 40,000 barrier is a big psychological boost for the bulls as round numbers hold special significance in people’s hearts and minds,” says Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.

Sure enough, stocks surged on Wednesday as investors bet the Fed would feel safe to cut interest rates.

The Federal Open Market Committee, or FOMC, meets next on June 11 and 12. After that, it convenes July 30 and 31, and then on September 17 and 18. It also has sessions in November and December.

The Dow’s cracking of the 40,000 mark on Thursday was a continuation of Wednesday’s bullish reaction to the prospect of a rate cut precipitated by lower CPI readings.

All Three Stock Indices Set Highs

All three major indices—the Dow Jones, S&P 500 and Nasdaq Composite—closed at record highs on Wednesday. Each one had already notched gains well over 5% in May alone.

Along with the Dow’s rise, the S&P 500 closed above 5,300 for the first time on Wednesday. Like the S&P 500, the technology-stock-heavy Nasdaq Composite gained 0.2% on Wednesday.

As of mid morning Thursday, the Dow was up more than another 100 points to crack the 40,000 mark for the first time in history.

The Dow first surpassed 39,000 less than a month ago, on February 22, according to Carson Group. It first cracked 30,000 on November 24, 2020.

The blue-chip index’s advance means it has rallied nearly 40% from its October 2022 lows. It has been lifted by strong quarterly corporate results and rising expectations for interest rate cuts by the Fed.

“[This] is a great reminder of how far we’ve come,” says Ryan Detrick, chief market strategist at Carson Group.

“Think about how many people were talking about recessions and bear markets all of last year, now we are once again back to new highs. Investors who were patient and ignored all the scary headlines were once again rewarded, just as they have been throughout history.”

Bullish Outlook

Many Wall Street experts are growing increasingly bullish on Wednesday’s inflation news and Thursday’s new record high for the Dow.

“Can stocks keep going? We think they can, and more strength in ’24 is likely. Earnings continue to surprise to the upside, and balance sheets for corporate America are in great shape,” Detrick says.

“It is an election year, so expect some bumps, but overall the bull market that started in October 2022 is alive and well in our view,” he says.

However, not all experts see the stock market’s 2024 potential through the same rose colored glasses.

John Lynch, chief investment officer for Comerica Wealth Management, is also bullish, although he adds cautionary notes. “Investors should be careful not to sprint on the victory lap, though, as a combination of geopolitics, valuation and market interest rates may lead to a sudden directional shift,” he says.

Sam Stovall, chief investment strategist for CFRA Research, warns that investors should brace themselves for potential profit taking.

But he also adds, “The DJIA eclipsing the 40K level is both a millennium milestone and a psychological threshold. Even though short-term digestions of gains have frequently followed, they have been fairly short in duration. As a result, investors should view them more as reasons to buy than bail.”

Bonds Are Also Benefiting

Investors also jumped into bonds, which sent the 10-year Treasury yield down near one-month lows around 4.33%.

The Dow news comes amid a wealth of positive developments on the corporate front. On Thursday morning, Walmart (WMT) posted quarterly profits, revenue and same-store sales that topped Wall Street expectations. Shares of the U.S. retail giant were up about 6.5% around midday.

José Torres, senior economist at Interactive Brokers, says, “Walmart’s outperformance is also helping [the] Dow today, as the company beat earnings and is increasingly taking market share from competitors including e-commerce ones like Amazon.”