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The Dow Jones Industrial Average broke above the 40,000 mark for the first time in history on Thursday morning following an encouraging inflation report.
The blue-chip index rose about 114 points, or 0.3%, and was trading around 40,022 in the morning.
Markets soared to record highs on Wednesday after the latest consumer price index showed cooling for the first time in months and concerns the Federal Reserve could start cutting interest rates as early as September. My expectations were high.
The Bureau of Labor Statistics said its inflation report showed prices rose 0.3% on a monthly basis, but at a slower pace than the previous two months. Economists had expected a 0.4% increase from the previous month, according to FactSet consensus estimates.
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Another important data point added to the enthusiasm. Retail sales in April were much lower than expected, showing that consumers are holding back on the spending that drives the economy. Spending fell short of the 0.4% increase expected by economists.
“The market is feeling good about the first good CPI report in four months,” said Gary Zegeo, head of fixed income at CIBC Private Wealth US. “was taken [together with retail sales] This supports the Fed’s fall rate cut. Markets are discounting September’s rate cut and are moving toward pricing in a second rate cut by December. ”
President Joe Biden celebrated the move Thursday. “This is great news for Americans’ retirement accounts and another sign of confidence in the American economy,” he wrote in X. “I’m building the economy from the middle out and from the bottom up, and our investments are making a difference.”
Markets were supported by profits from staple retailers such as Walmart (WMT), which beat estimates and rose nearly 6% on Thursday morning. Airline stocks, utility stocks and big tech stocks rose sharply.
Thursday’s speech from Fed officials also lifted investors’ spirits. New York Fed President Williams told Reuters that inflation trends look good, and Richmond Fed President Tom Barkin said he was upbeat about light retail sales in April.
Main Street vs. Wall Street
A new record for the Dow Jones Industrial Average, which is made up of 30 blue-chip stocks, is an investment that remains positive about the U.S. economy despite rising interest rates and inflation, geopolitical conflicts, and years of recession warnings. It marks a symbolic change for the house.
It also highlights a stark contrast between sentiment on Wall Street and Main Street.
A University of Michigan consumer survey released earlier this month found that price increases have accelerated again and consumer sentiment has fallen to its lowest level in six months.
The recent inflation crisis has left Americans worried about the economy, with a recent CNN poll showing that many believe the U.S. economy is heading in the wrong direction. Some believe that the United States is currently in a recession, although there is no evidence of this.
Overall, 26% of Americans say their financial situation is currently stable, according to CNN data from February. Almost half of Americans say they believe the economy remains in decline.
The first three months of 2024 brought significant momentum to the market. The S&P 500 set 22 new records from January 1st to April. But since then, the market has become volatile as investors have begun to worry that inflation and interest rates will remain high for an extended period of time.
Wednesday’s CPI report changed that perception.
“This was a good report considering three hot spots that exceeded expectations.” [CPI] “It seems like it was a potentially difficult, not really stagnant inflation environment,” Tyler Schipper, an economics professor at the University of St. Thomas in Minnesota, told CNN in an interview.
While a break above the 40,000 level doesn’t have much practical value for investors, it is something that will grab the attention of the public and could help drive that optimistic sentiment beyond Wall Street. Some people do.
“The Dow 40,000 milestone is a sign of how resilient the U.S. economy has been at a time when many were calling for a recession,” Art Hogan, chief market strategist at B. Riley Financial, said in a recent note to CNN. “It shows how well we are doing.”
“The most important thing about going through these big round numbers is that it brings Wall Street news to Main Street for at least one day. This means corporate earnings are growing and investor confidence remains strong. “This also confirms that,” he said.
For many Americans, “Dow” simply means the stock market. The smaller stocks in this index represent some of the nation’s largest companies, from Microsoft to McDonald’s to Chevron, and are widely held by retail and institutional investors alike. Masu.
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When the New York Stock Exchange crashed in October 1929, triggering a bank run across the United States, traders were inundated.
Here are the key points on how the Dow reached $40,000.
Dow is formed: The first daily closing price on May 26, 1896 was 40.94. The Dow Jones Industrial Average did not get off to a good start, dropping 30% to an all-time low of $28.48 by August of that year.
Dow 100: The first time the Dow closed in triple digits was in January 1906. This marked a remarkable recovery in average stock prices, which had hit an all-time low when Teddy Roosevelt was president. The Fed won’t be created for another seven years.
1929 Crash: The Dow Jones Industrial Average fell 38 points on October 28th, and another 31 points the next day. That may not sound bad today, but this represents back-to-back declines of 13% and 12% for the Dow. These remain two of the worst single-day declines in the index’s history.
Dow 1,000: November 14, 1972. Richard Nixon had just won re-election by winning 49 states. The Dow’s constituent stocks, which include Woolworths, Eastman Kodak and International Nickel, have remained unchanged for 13 years.
Crash of 1987: On October 19th, the Dow Jones Industrial Average plummeted 508 points, a 23% decline, which remains the largest single-day decline in history. A week later, it was down 8%. However, the damage was short-lived, and within a year, the Dow Jones Industrial Average returned to its pre-crash level.
Dow 10,000: March 29, 1999. The “irrational exuberance” of the tech bubble was in full swing, and the Dow Jones Industrial Average rose 1,000 points in less than a year to reach this reference point. I earned another 1,000 points in just the next month.
A year later, the dot-com stock bubble burst, and by September 2001, the Dow Jones Industrial Average had fallen nearly 30%.
2008-2009 Meltdown: Due to the financial crisis, the Dow Jones Industrial Average lost nearly half its value in less than a year, hitting bottom at a closing price of $6,547 on March 9, 2009. The worst day was September 29, 2008, when the Dow Jones Industrial Average lost $778, its all-time high at the time. It scored points after Congress rejected a $700 billion bank bailout. This relief was later approved.
Dow 15,000: May 7, 2013. As the economy continues to recover from the Great Recession, the Dow Jones Industrial Average has entered one of its strongest periods in the current bull market. It crossed the 15,000 mark and ended the year up 26.5%, marking the best full-year performance of the current bull market. The Dow Jones Industrial Average rose 25%, roughly matching what it did in 2017.
Dow 20,000: January 25, 2017. The stock market has been on a roll since the day after the 2016 election, with the Dow Jones Industrial Average rising nearly 10% as investors looked forward to tax cuts and deregulation under the Trump administration.
Dow 25,000: January 4, 2018. The passage of the Trump tax cuts, especially the reduction in the corporate tax rate in December 2017, supported the rapid movement between 20,000 and 25,000.
Dow 30,000: November 24, 2020: The stock market plummeted in the spring of 2020 due to the impact of the new coronavirus. But renewed hopes for a vaccine and the outcome of the presidential election ended a period of uncertainty on Wall Street, and the stock market rose again.
This story has been updated with additional development and background.
