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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Dow closes above 40,000 for the first time

By Aaron Gregg Washington Post

The Dow Jones Industrial Average closed above 40,000 on Friday, the first time it ended a trading session above the milestone.

The blue-chip index closed at 40,003.59, up more than 0.3% for the day and more than 10% for the week. The index had passed 40,000 briefly Thursday but fell back before the close of that day’s trading.

The market’s gains, analysts said, reflect renewed confidence that the Federal Reserve can win its inflation fight without breaking the economy, contributing to a tech-driven rally in stocks that shows little sign of slowing.

“What was once an incomprehensible level is now at our doorstep,” John Lynch, chief investment officer at Comerica Wealth Management, said in an email to the Washington Post. 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 and into this year before pausing their ascent in March over inflation worries. The Dow average contains only about 30 large stocks, but as one of the oldest market indexes, it is a widely watched benchmark.

Among the biggest contributors to the Dow’s rally over the past year have been Microsoft, which has gained roughly 35%, and Goldman Sachs, with a gain of 45%.

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.

Those 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% in April. GlobalData retail industry analyst Neil Saunders has called the performance of the retail sector “solid but not spectacular” in recent months, pointing to 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 with Bloomberg TV, 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 is higher than people think,” Dimon said.

But new inflation data this week showed that the “core” annual inflation rate in April was 3.6%, the lowest year-over-year increase since 2021.

The Dow and other stock indexes have responded closely to the Fed’s interest rate moves: Markets declined steadily in 2022 as rates went up, and bounced back last year when rates reached a plateau.

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.

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Jaclyn Peiser contributed to this report.

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