What drove the Dow to 40,000 and why it could keep rising | Wilnesh News

Major milestones like the Dow Jones Industrial Average surpassing the 40,000 mark this week make for good headlines, but market pundits don’t get much else out of the move.

What really matters are the factors underpinning the market, namely whether companies can see sustainable profits, the positioning of monetary and fiscal policy and future prospects for economic health, particularly the labor market.

Fortunately for the market, most of these variables are looking quite positive at the moment and are largely lagging the latest milestone moves in the blue chip averages.

Ryan Detrick, chief market strategist at Carson Group, said 40,000 “is a great milestone, but ultimately there’s not much difference between 39,999 and 40,000.” “Still, it’s a good reminder of how far we’ve come. Think about how much people were talking about a recession and a bear market all last year. Now we’re back to new highs again.”

In fact, the market stumbled through 2022, and then heading into 2023, nearly everyone on Wall Street believed that a looming recession would further weigh on stocks.

But despite erratic corporate profits and other headwinds, the economic contraction of “Waiting for Godot” never happened. Meanwhile, fiscal aid from Congress has helped offset the impact of rising interest rates, while a tech boom powered by artificial intelligence has powered markets.

These factors outweighed uneasiness about the direction of the Fed’s monetary policy, and inflation proved unexpectedly sticky.

“Investors are just tired of being afraid of all these pessimistic ideas floating around during 2022 and 2023,” said market veteran Ed Yardeni, principal at Yardeni Research. “The market is starting to undervalue, led by productivity and artificial intelligence.’ The Roaring 20s’ scenario.”

Once investors examine these threats, the path of least resistance for the market is higher.

Although the 30 stocks in the Dow Jones index rose slightly on Friday, they have gained nearly 6% in 2024 and more than 19% in the past year.

However, its performance has lagged well behind the major averages, with the S&P 500 up 11% in 2024 and 27% over the past year, while the Nasdaq Composite and all its high-flying tech Shares rose 11% and 33% respectively.

The comparison takes some of the luster off the Dow’s achievement, which it has struggled to hold on to after touching the 40,000 mark for the first time on Thursday and heading into Friday.

In fact, there are many critics of the Dow Jones Index.

The main criticism is that it captures only a small part of the market’s actual conditions and often only introduces new stocks after they have reached their peak. along with”The stocks of “Huali Qi” are even lagging behind their market peers on average.

However, Sanders thinks the factors driving the market higher are worth considering, citing things like American Association of Individual Investors poll It shows that more than one-third of the respondents have a “neutral” attitude towards stocks, and the bullish outlook has weakened, but they still have a basically positive attitude.

“Market participants do tend to extrapolate when earnings change significantly year over year. So setting the bar quite high may bring some risks,” Sanders said. “But the current economic backdrop, continued deflation Combined with economic growth that’s still good but not hot, that’s a pretty good recipe.”

Negative sentiment can actually be good for the market, especially if it leads to oversold conditions.

The Dow Jones plunged 5% in April as markets grew jittery about a potentially hawkish Federal Reserve, paving the way for a recent rebound once investors became more comfortable with the central bank’s longer-term higher policy and solid economic fundamentals. Prosperous earnings season.

“What really matters is never where the stock market is, but where the market is pricing and where it should be pricing,” said economist and market strategist Jim Paulsen, formerly of Wells Fargo and now Author of the Paulsen Perspectives newsletter on Substack. “If we had had these (economic) numbers at any time before the Great Recession in the ’80s and ’09, we would have heralded nirvana. Really, the fundamentals are very good.”