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The journey to reach a record 40,000 points
NEW YORK (Reuters) – The Dow Jones Industrial Average, one of the main US stock indexes this year, had its moment in the spotlight on Thursday, when it briefly surpassed 40,000 points for the first time in its history.
The Dow Jones record – as well as new records for the S&P 500 and Nasdaq Composite earlier this week – come as investors grow more confident that the US is headed for a soft economic landing, where the Federal Reserve is capable of taming inflation without any problems. harming growth.
A stronger-than-expected earnings season also helped push shares higher, with 77% of companies beating estimates, compared to 67% historically, according to LSEG IBES data from May 10.
While Dow components are weighted in the index by their share prices, S&P 500 stocks are weighted largely by their market value. The relatively rare changes in the Dow mean it can sometimes be slower to include some of the hottest companies.
About $89 billion in assets are pegged to the Dow, compared with $11.45 trillion pegged to the S&P 500, according to S&P Dow Jones Indices’ December 2023 annual asset survey.
Still, the price-weighted index maintains cultural prestige: Created in 1896, it is much older than the S&P 500, which was launched in 1957, and the Nasdaq, which was launched in 1971. The Dow has outperformed the S&P 500 by eight of the last 20 years. This year, it is up 5.8%, compared to the S&P 500’s 11.1% gain year-to-date and the Nasdaq’s 11.2% rise.
“The Dow is the U.S. index,” said Quincy Krosby, chief global strategist at LPL Financial. “It has been overlooked by professionals, but the Dow Jones is enduring and represents Main Street America.”
The blue-chip benchmark closed at 39,869.38 on Thursday after reversing in afternoon trading. Index futures were roughly flat Friday morning.
The latest 10,000-level milestones in the Dow have been followed by accelerating gains in the index, although market participants say it is difficult to pinpoint a reason for the momentum.
“Breaking the 40,000 barrier is a huge psychological boost for bulls.” Chris Zaccarelli, CIO at Independent Advisor Alliance
The Dow registered an average gain of 4.3% for the month after surpassing the 10,000 point mark. That’s well above the index’s average monthly gain of 0.57% since May 1896.
“Breaking the 40,000 barrier is a huge psychological boost for bulls, as round numbers have a special meaning in people’s hearts and minds,” Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, said in a note.
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The latest milestone comes just over three years after the index reached 30,000 points, a period marked by wild market swings as investors grappled with the fallout from the COVID-19 pandemic, rising inflation and interest rate increases by the Fed to combat rising consumer prices.
The composition of the Dow can contrast markedly with that of the S&P 500 due to the different methods by which the indexes select and weight their constituents.
For example, the biggest weight in the Dow as of Wednesday’s close, UnitedHealth Group, is only the 13th most heavily weighted stock in the S&P 500. The second largest weight in the Dow, Goldman Sachs, is not in the top 50 of the S&P 500 .
On the other hand, three of the S&P 500’s top six weights – Nvidia, Alphabet and Meta Platforms – are not in the Dow.
The Dow’s journey from 30,000 to 40,000 points was marked by a wide gap between the index’s best and worst performing stocks. Top performers include American Express, Caterpillar and Microsoft, whose shares have nearly doubled in value since November 2020, when the Dow first reached 30,000.
Bringing up the rear are Verizon, Nike and Intel, which have lost about a third of their value during this period.
(Reporting by Saqib Iqbal Ahmed and Lewis Krauskopf; additional reporting by Caroline Valetkevitch; editing by Ira Iosebashvili and Jamie Freed)