Written by Saqib Iqbal Ahmed and Louis Krauskopf
NEW YORK (Reuters) – The Dow Jones Industrial Average, which has fallen among major U.S. stock indexes this year, got its moment in the spotlight on Thursday as 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 — comes as investors grow more confident that the U.S. is headed toward an economic soft landing, in which the Federal Reserve can tame inflation harmlessly. Harm growth.
A stronger-than-expected earnings season also helped push stocks higher, with 77% of companies beating estimates, compared to 67% historically, according to LSEG IBES data as of May 10.
While the Dow Jones components in the index are weighted by their stock prices, S&P 500 stocks are weighted largely by their market capitalization. The relatively infrequent changes in the Dow Jones Index mean that it can sometimes be slower to include some of the more important companies.
About $89 billion in assets are measured by the Dow Jones Index, compared with $11.45 trillion tied to the S&P 500, according to the S&P Dow Jones Annual Survey of Assets as of December 2023.
Yet the price-weighted index retains a cultural cache: Founded in 1896, it is much older than the S&P 500, which launched in 1957, and the Nasdaq, which launched in 1971. The Dow has outperformed the S&P S&P 500 in eight of the latter markets. 20 years. This year, it’s up 5.8%, compared to the S&P 500’s 11.1% year-to-date gain and the Nasdaq’s 11.2% rise.
“The Dow Jones is the American benchmark,” said Quincy Crosby, chief global strategist at LPL Financial. “It’s underrated by the pros, but the Dow Jones lives on and Main Street represents America.”
The index closed at 39,869.38 on Thursday after reversing in afternoon trading.
The Dow’s 10,000-plus milestones have been followed by accelerating gains in the index, though market participants say it’s difficult to pinpoint a reason for the momentum.
The Dow Jones averaged a 4.3% gain in the month after breaking the 10,000 mark. This is well above the index’s average one-month gain of 0.57% since May 1896.
“Breaking the 40,000 mark 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 the Alliance of Independent Advisors, said in a note.
The latest achievement comes just over three years after the index reached 30,000 points, a period marked by significant market volatility as investors grappled with the fallout from the COVID-19 pandemic, rising inflation and interest rate hikes by the Federal Reserve to combat rising consumer prices. .
The composition of the Dow Jones can contrast markedly with the S&P 500 because of the different ways indices choose and weight their components.
For example, the top weight in the Dow Jones 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, does not make the top 50 of the S&P 500. .
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 was marked by a wide gap between the best and worst performing stocks in the index. 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.
At the forefront are Verizon, Nike, and Intel, which lost about a third of their value during that period.
(Reporting by Saqib Iqbal Ahmed and Louis Krauskopf; Additional reporting by Carolyn Valitkiewicz; Editing by Ira Iosibashvili and Jamie Freed)
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