Dow shoots past 40,000 for the first time on hopes that Fed will follow cooler inflation print with rate cuts

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The Dow Jones Industrial Average eclipsed 40,000 for the first time on Thursday as investors grow confident that the stock market rally can keep running on hopes the Federal Reserve will start cutting interest rates later this year.

The oldest of Wall Street’s three main stock indexes has been boosted by the prospect of a resilient US economy, ebbing inflation and robust corporate earnings. It took 872 trading sessions through Wednesday for the Dow to set its latest 10,000-point milestone — or a gain of 33% — with the index recouping all of its losses from the Fed’s aggressive rate hikes over the past two years, data compiled by Bloomberg show.

“All traders wanted the past year was for the Fed to signal that interest-rates have peaked,” Jamie Cox, managing partner at Harris Financial Group, said over the phone. “With rate cuts still expected later this year, that’s propelled the latest surge in stocks as the reality sets in that profits for companies beyond tech are also strong, helping to broaden out the rally.”

While the index has evolved over time since it was first launched in 1896 by American journalist Charles Dow, it’s still a much narrower equities gauge than the S&P 500 or Nasdaq 100, both of which have soared back to records.

A key difference between the Dow and the broader S&P 500 is the methods used to weight their constituent stocks. The Dow is price-weighted, meaning that changes in the highest-priced stocks have greater impact on the index level than price changes in the lower-priced stocks. The S&P 500, however, is market-cap-weighted.

Since the Dow first crossed 30,000 in November 2020, Goldman Sachs Group Inc., UnitedHealth Group Inc. and Caterpillar Inc. are the biggest point contributors to the index’s latest 10,000-point milestone — a trek that took more than three years. The blue-chip index’s torrid 23% rise from its October 2023 low has been driven by industrial, technology and consumer shares, with American Express Co. rising more than 70% in that span.

“The market is showing more and more confidence in a genuine soft landing or even no landing scenario where overall economic growth in the US continues to stay solid,” said Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management. “It makes sense that a broader group of companies, even those that are more cyclical in areas like industrials, materials and energy can do well.”

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