The world’s largest stock market hovered near its all-time highs, with the Dow Jones Industrial Average touching the historic 40,000 mark on bets that rate cuts will keep powering Corporate America.

The oldest of Wall Street’s three main stock indexes has been boosted by prospects of a resilient 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 per cent — with the index recouping all of its losses from the Federal Reserve’s aggressive rate hikes over the past two years, data compiled by Bloomberg show.

The last time the measure of blue chips broke a major milestone was in November 2020 — when it topped 30,000 — amid a series of market-friendly developments that unleashed animal spirits — even as the pandemic continued to rage. This time around, the market is defying the old adage “sell in May and go away,” with equities on pace for their best month in 2024.

“Breaking the 40,000 barrier is a big psychological boost for the bulls as round numbers hold special significance in people’s hearts and minds,” said Chris Zaccarelli at Independent Advisor Alliance. “Markets are now headed into ‘overvalued territory,’ so it’s prudent to dollar-cost average and be more discerning when investing in equities.”

The S&P 500 closed below 5,300. Walmart Inc. surged on a bullish outlook as the big-box retailer attracts consumers looking for essentials and discounts. GameStop Corp. and AMC Entertainment Holdings Inc. tumbled as the meme-stock frenzy faded.

Treasury 10-year yields rose four basis points to 4.38 per cent. The dollar bounced back.

“40,000 is a great milestone, but at the end of the day, there isn’t much difference between 39,999 and 40,000,” said Ryan Detrick at Carson Group. “Still, this is a great reminder of how far we’ve come. Think about how many people were talking about recessions and bear markets all of last year, now we are once again back to new highs.”

Can stocks keep going?

“We think they can,” Detrick said. “Earnings continue to surprise to the upside, balance sheets for Corporate America are in great shape, while the consumer might have some cracks, but is still strong thanks to a very healthy employment backdrop. Then consider lower rates are likely coming, thanks to inflation that should drastically improve in the second half of this year.”

To Matt Maley at Miller Tabak + Co., a very short-term “breather” is quite likely right now and would be a healthy development after the rally to fresh records.

“There is a lot of leeway for the stock market if we do see a short-term pullback soon,” Maley said. “Put another way, the bulls are still fully in charge right now, and so it will take a significant reversal to stem the tide of the upside momentum.”

“The market is showing more and more confidence in a genuine soft landing or even no landing scenario where overall economic growth in the U.S. 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.”

Analysts have ratcheted up earnings forecasts for the current quarter at the swiftest pace in two years, suggesting that the worst of the U.S. profit slump may be firmly in the rear-view mirror, Bloomberg Intelligence data show.

To John Lynch at Comerica Wealth Management, the Dow hitting 40,000 is a testament to the powers of capital formation, innovation, profit growth, and economic resilience.

“The recent technical momentum and fundamental strengths, including earnings and interest rates, suggest further near-term gains,” he said. “Investors should be careful not to sprint on the victory lap, though, as a combination of geopolitics, valuation, and market interest rates may lead to a sudden directional shift.”

It’s also worth saying that while the Dow Average has evolved over time since it was first launched in 1896 by American journalist Charles Dow, it’s still a much narrower equity gauge than the S&P 500 or Nasdaq 100. 

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.

Traders also kept a close eye on a drumbeat of Fed speakers, with three officials saying the central bank should keep borrowing costs high for longer as policymakers await more evidence inflation is easing, suggesting they’re not in a rush to cut interest rates.

Cleveland Fed President Loretta Mester, New York Fed President John Williams and Richmond Fed President Thomas Barkin, speaking separately Thursday, argued it may take longer for inflation to reach their 2 per cent target.

Jamie Dimon said he’s still more worried about inflation than markets appear to be.

The JPMorgan Chase & Co. chief executive officer said significant price pressures are still influencing the U.S. economy and may mean interest rates will be higher for longer than many investors are expecting. Dimon cited costs linked to the green economy, re-militarization, infrastructure spending, trade disputes and large fiscal deficits. 

“There are a lot of inflationary forces in front of us,” Dimon said in an interview on Bloomberg Television Thursday. “The underlying inflation may not go away the way people expect it to.”

Corporate Highlights:

  • Amgen Inc. won U.S. approval for a new drug to treat a particularly aggressive form of advanced lung cancer, providing a badly needed new option for patients when chemotherapy stops working.
  • Sportswear maker Under Armour Inc. gave a full-year outlook that fell short of Wall Street’s expectations.
  • Tractor maker Deere & Co. reduced its profit outlook for the year as declining agriculture income pressured the world’s biggest farm machinery maker.
  • Charles Schwab Corp. said Chief Financial Officer Peter Crawford is leaving the company after 22 years with the firm, and will be replaced by Mike Verdeschi from Citigroup Inc.
  • Meta Platforms Inc. is under investigation by the European Union over concerns its algorithms are illegally exploiting the weakness of children to get them addicted to Facebook and Instagram.
  • United Airlines Holdings Inc. can again add new planes and routes after the Federal Aviation Administration eased restrictions, a sign of progress after a series of safety issues led to a clampdown on the carrier’s operations.
  • Warren Buffett’s Berkshire Hathaway Inc. unveiled a US$6.7 billion stake in insurer Chubb Ltd., ending months of suspense over its mystery position in a financial firm, previously kept concealed in regulatory filings.
  • Baidu Inc.’s revenue grew at its slowest pace in more than a year, reflecting the challenges of monetizing its lead in AI during a Chinese economic downturn.
  • Inc. reported a better-than-anticipated rise in revenue, after it slashed prices and ramped up shopper perks to counter fierce competition during a Chinese downturn.

Key events this week:

  • China property prices, retail sales, industrial production, Friday
  • Eurozone CPI, Friday
  • U.S. Conf. Board leading index, Friday