Dow Jones hits 40,000 on renewed hopes for US economy

The Dow Jones hit 40,000 short for the first time Thursday amid renewed investor hopes of a “soft landing” for the US economy after a favorable inflation report. The index fell slightly at the close of trading to 39,869.

The index, which consists of shares of 30 large companies such as Apple and McDonald’s, has gained a modest 6% over the year. The other major US stock indices, the S&P 500 and Nasdaq, also broke records and have outperformed the Dow with their gains so far this year.

The Biden-Harris campaign released a statement calling the milestone “just another example of how President Biden is strengthening our economy and helping secure the retirement of millions of Americans across the country.”

On Wednesday, the Bureau of Labor Statistics reported that the Consumer Price Index climbed by 3.4% for April – below analysts’ expectations and with a clear trend towards further deceleration or slowing price growth.

“The news on core inflation [exklusive mat- och energipriser] was better than expected,” said Gary Pzegeo, head of fixed income at CIBC Private Wealth US, in a statement. “Core goods [som bilar] continue to be in outright deflation, housing inflation slowed and other services improved month-over-month. Retail sales also showed some deceleration from the previously hot consumer sector. ”

Investors tend to favor deceleration because it means prices are still moving up – but at a more sustainable pace. This also has implications for interest rates – the cost of borrowing money for everything from credit cards to car loans and, indirectly, for mortgage rates.

Markets had a tough spring, as three successive reports showed inflation picking up – from 3.1% in January to 3.5% in March. The Dow Jones Industrial Average fell by around 5% between the end of March and the beginning of April as economists and investors grappled with whether or not progress on inflation had stalled.

The April report, which reflected the first decline in inflation since the beginning of the year, appears to have alleviated some of these concerns.

“After three months of inflation disruption, the April report put a soft landing and 2024 rate cut in sight for investors,” Julia Pollak, ZipRecruiter’s chief economist, said in a statement.

The Federal Reserve continues to target inflation at 2%. If the central bank believes that price growth is slowing towards that figure, it may consider cutting the policy rate from the almost 5.5% level it has been at for about a year.

If interest rates go down, it would help lower monthly payments for businesses and consumers across the economy.

Of course, the stock market is also tied to corporate earnings – and right now, listed companies are reporting robust profits. In the first quarter of the year, around three-quarters of all firms beat their profit estimates, a higher rate than the historical average.

Early Thursday, Walmart joined their ranks as it reported earnings above analysts’ expectations.

“Bad economy? Publicly traded U.S. companies don’t see it, as corporate profit expectations move steadily higher,” Bankrate analyst James Royal said in a statement. “Strong current profits and rising earnings expectations are driving the S&P 500 to new record levels.”

A stronger stock market should also provide a windfall for many Americans looking at their 401(k) balances. A Bank of America Institute report on retirement savings showed that the average account balance increased from $78,883 in March last year to $92,142 in March this year, an increase of almost 17%.

But for many consumers, especially low-income ones, the US economy is still not feeling good. The latest University of Michigan consumer sentiment survey has dropped to its lowest level in six months. The New York Federal Reserve’s latest survey of consumer expectations showed that Americans expect inflation to actually worsen in the near term, although the report came ahead of this week’s inflation report.

The report also found that workers feel less secure in the labor market, with the average perceived likelihood of finding a job if one’s current job disappeared falling to its lowest reading since April 2021.

But overall, the majority of data points show a US economy humming along.

“The still-healthy consumer, strong labor market, potentially lower prices helping housing, and improving manufacturing suggest an economy that could surprise to the upside for the remainder of ’24,” Ryan Detrick, chief strategist at Carson Group, wrote in an analysis earlier this month.

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