The Dow Jones industrial average closed above the 40,000 mark for the first time on Friday, with Canada’s main stock index also ending at a fresh record high, propelled by recent U.S. data supporting expectations for interest rate cuts by the Federal Reserve this year.
It was the Dow’s fifth week of advances in a row.
The most recent milestone comes a little more than three years after the index hit 30,000 points, a period marked by big market swings as investors grappled with the aftermath of the COVID-19 pandemic, surging inflation and the interest rate increases by the Fed to combat rising consumer prices.
Investors are now growing more confident that the U.S. is heading for an economic soft landing, where the Fed is able to tame inflation without badly hurting growth. A stronger-than-expected earnings season has also helped propel stocks higher, with 77% of companies beating estimates, compared to 67% historically, according to LSEG IBES data as of May 10.
“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,” Chris Zaccarelli, chief investment officer at Independent Advisor Alliance said in a note.
Some US$89 billion in assets is benchmarked to the Dow, compared to US$11.45 trillion pegged to the S&P 500, according to the S&P Dow Jones Indices annual survey of assets as of December 2023.
Still, the price-weighted index retains cultural cache: established in 1896, it is far older than the S&P 500, which was launched in 1957 and the Nasdaq, which was launched in 1971. The Dow outperformed the S&P 500 in eight of the last 20 years.
Past 10,000-level milestones in the Dow have been followed by accelerated gains in the index, though market participants say it is difficult to pinpoint a reason for the momentum. The Dow has notched an average gain of 4.3% in the month after crossing a 10,000 point milestone. That’s well above the index’s average rolling one-month gain of 0.57% since May 1896.
Dow components are weighted in the index by their share prices, S&P 500 stocks are weighted largely by their market value. The composition of the Dow can contrast markedly from that of the S&P 500 due to the different methods by which the indexes select and weight their constituents.
For example, the top 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 Dow’s second-biggest weighting, Goldman Sachs, does not make the S&P 500′s top 50.
By contrast, three of the top six weights in the S&P 500 - Nvidia, Alphabet and Meta Platforms - are not in the Dow.
The Dow’s journey from 30,000 to 40,000 points has been 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 all roughly doubled in value since November 2020, when the Dow first touched 30,000.
Bringing up the rear are Verizon, Nike and Intel, which have shed around a third of their value over that period.
On Friday, the benchmark S&P 500 edged higher after paring losses while the Nasdaq fell, but both chalked up a fourth straight week of gains.
The TSX was up 165.54 points, or 0.74%, at 22,465.37, the highest close ever.
Silver prices jumped to an 11-year high, copper prices hit a 25-month peak and strength in most metals helped the TSX materials sector lead sector gains with a 2.8% jump.
The energy sector in Toronto posted a 1.2% gain, as economic indicators from big consumers China and the United States bolstered hopes for higher oil demand.
Shares in Tilray Brands dropped 7.2% to the bottom of the TSX after the cannabis-lifestyle company announced that it may offer and sell shares of common stock having an aggregate offering price of up to $250 million.
The broader healthcare index was off 1.6%, leading sectoral losses.
Next week, investors will gauge Canada’s April inflation data on Tuesday for fresh insights into the Bank of Canada’s rate-cut timeline.
Investors anticipate the BoC to begin rate cuts as early as June or July, ahead of the Fed. Market pricing suggests the Fed’s first cut could arrive in September.
In the U.S. Friday, eight out of the 11 S&P 500 sectors advanced, with energy leading gains while technology was the biggest loser. For the week, Dow gained 1.24%, S&P 500 rose 1.54%, and Nasdaq climbed 2.11%.
The Dow Jones Industrial Average rose 134.21 points, or 0.34%, to 40,003.59, the S&P 500 gained 6.17 points, or 0.12%, to 5,303.27 and the Nasdaq Composite lost 12.35 points, or 0.07%, to 16,685.97.
Advanced Micro Devices gained 1.1% after Microsoft said it plans to offer its cloud computing customers a platform of AMD artificial intelligence chips that will compete with components made by Nvidia.
Reddit rose 10% following a partnership with OpenAI to bring its content to ChatGPT.
GameStop dropped nearly 20% after filing for a mixed-shelf offering and saying it expects first-quarter net sales to drop from a year ago.
About 15.6 billion shares changed hands across U.S. exchanges, compared with an average of about 11.7 billion shares over the last 20 sessions. Advancing issues outnumbered decliners by a 1.18-to-1 ratio on the NYSE. On the Nasdaq, 2,039 stocks rose and 2,221 fell as declining issues outnumbered advancers by a 1.09-to-1 ratio. The S&P 500 posted 45 new 52-week highs and one new low while the Nasdaq recorded 157 new highs and 68 new lows.
Reuters, Globe staff
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