The Dow Jones Industrial Average closed above 40,000 on Friday for the first time, marking a significant milestone. The blue-chip index ended the trading session at 40,003.59, up more than 0.3 percent for the day and over 10 percent for the week. It had briefly surpassed 40,000 on Thursday but fell back before the day’s close.
Analysts attributed the market’s gains to renewed confidence that the Federal Reserve can control inflation without harming the economy, fueling a tech-driven stock rally that shows little sign of abating.
“What was once an incomprehensible level is now at our doorstep,” John Lynch, chief investment officer at Comerica Wealth Management. He added, “This achievement is a testament to the powers of capital formation, innovation, profit growth, and economic resilience.”
Stocks rallied from the last quarter of 2023 into this year before pausing their ascent in March over inflation worries. The Dow average includes about 30 large stocks but is a widely watched benchmark as one of the oldest market indexes.
Among the biggest contributors to the Dow’s rally over the past year were Microsoft, which gained roughly 35 percent, and Goldman Sachs, with a gain of 45 percent.
Climbing past 40,000 for the first time is “a big psychological boost for the bulls,” said Chris Zaccarelli, chief investment officer at the Charlotte-based Independent Advisor Alliance. Round-number milestones “hold special significance in people’s hearts and minds,” he added.
Still, some analysts urged caution when buying into a market at record valuations. Zaccarelli said investors are showing a sort of “irrational exuberance,” including the return of risky meme stock bets and, more broadly, a fixation on good news while downplaying signs of trouble.
These risks include the possibility that inflation stays high longer than expected, which might lead the Fed to keep rates at their current level or even raise them.
Analysts also see some relative weakness in retail sales, which posted an increase of 4 percent in April. GlobalData retail industry analyst Neil Saunders has described the retail sector’s performance as “solid but not spectacular” in recent months, noting softer spending in certain discretionary areas such as beauty products and home improvement.
“We remain cautious about the state of the consumer, but for now, shoppers are taking various economic challenges in their stride,” Saunders said.
JPMorgan Chase chief executive Jamie Dimon also struck a cautious tone in a Thursday interview, saying he’s worried that “happy talk” may have blinded the stock market to the risks it faces.
“I just said stocks are very high, and I think the chances of inflation staying high or rates going up are higher than people think,” Dimon said. But new inflation data this week showed that the “core” annual inflation rate in April was 3.6 percent, the lowest year-over-year increase since 2021.
The Dow and other stock indexes have closely responded to the Fed’s interest rate moves: Markets declined steadily in 2022 as rates went up and bounced back last year when rates plateaued.
The inflation report was “a breath of fresh air” for the central bank, Raymond James chief economist Eugenio Aleman said in a note to investors, because the bulk of the price increases were driven by gasoline and shelter costs. The better-than-expected report “brought back expectations of two rate cuts in 2024,” Aleman wrote.
