Passing major milestones such as the 40,000 barrier the Dow Jones Industrial Average eclipsed this week makes for a nice headline, but market experts do not take much else from the move.<\/p>\n
What really matters is what underpins the market, namely, whether companies are seeing sustainable profits, where monetary and fiscal policy is positioned and what the future landscape is for economic health and specifically the labor market.<\/p>\n
Fortunately for the market, most of those variables look pretty positive these days, and are largely behind the blue-chip average\u2019s\u00a0latest landmark move.<\/p>\n
Forty thousand \u201cis a great milestone, but [at the] end of the day there isn\u2019t much difference between 39,999 and 40k,\u201d said Ryan Detrick, chief market strategist at Carson Group. \u201cStill, this is a great reminder of how far we\u2019ve 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.\u201d<\/p>\n
Indeed, the market stumbled through 2022, then entered 2023 with nearly all of Wall Street convinced that a looming recession would further pressure stocks.<\/p>\n
But the \u201cWaiting for Godot\u201d economic retrenchment never happened, despite wobbly corporate profits and other headwinds. At the same time, fiscal help from Congress helped offset higher interest rates, while a boom in the technology sector courtesy of artificial intelligence provided wind beneath the market\u2019s wings.<\/p>\n
Those factors outweighed queasiness over where the\u00a0Federal Reserve was headed\u00a0with monetary policy amid inflation that has proved surprisingly sticky.<\/p>\n
\u201cInvestors just got tired of being scared about all these pessimistic thoughts that were flying around during 2022 and 2023,\u201d said market veteran Ed Yardeni, head of Yardeni Research. \u201cThe market started discounting the \u2018roaring 20s\u2019 scenario, led by productivity and artificial intelligence.\u201d<\/p>\n
Once investors looked through those threats, the path of least resistance for the market was higher.<\/p>\n
The 30-stock Dow, though up fractionally Friday, has risen nearly 6% in 2024 and is up more than 19% over the past year.<\/p>\n
However, it has vastly underperformed its major average counterparts, with the S&P 500 jumping 11% in 2024 and 27% over the past year, while the Nasdaq Composite and all its high-flying tech names have surged 11% and 33%, respectively.<\/p>\n
That comparison took some of the luster off the Dow\u2019s achievement, which it struggled to hold as trading continued Thursday after it first hit the 40,000 mark then into Friday.<\/p>\n
Indeed, the Dow has more than its share of detractors.<\/p>\n
The criticism is primarily that it only captures a small fraction of what is really happening in the market and tends to bring in new stocks only after they have hit their peak. With the surge in \u201cMagnificent Seven\u201d stocks, the average is even farther back than its market peers.<\/p>\n
\u201cPeople don\u2019t focus on the Dow that much, certainly not younger investors,\u201d said Liz Ann Sonders, chief market strategist at Charles Schwab. \u201cI don\u2019t know if they ever even think about the Dow. For younger investors, Nasdaq is the proxy that they think of. But all else [being] equal, round numbers boost psychology.\u201d<\/p>\n
Sonders, though, thinks the factors that have pushed the market higher are worth considering, citing sentiment surveys such as the\u00a0American Association of Individual Investors poll\u00a0indicating more than one-third of respondents are in a \u201cneutral\u201d mindset toward stocks with the bullish outlook diminishing, though still largely positive.<\/p>\n
\u201cMarket participants do have a tendency to extrapolate when you\u2019re in the glow of these huge year-over-year changes in earnings. So, there could be some risk associated with the bar being set fairly high,\u201d Sonders said. \u201cBut right now, the economic backdrop, the combination of continued disinflation and still decent but not-hot economic growth, that\u2019s a pretty good recipe.\u201d<\/p>\n
Negative sentiment actually can be a boon to markets, particularly if it results in oversold conditions.<\/p>\n
A slump in April, when the Dow fell 5%, as markets grew skittish over a potentially hawkish Fed, helped pave the way for the most recent rally once investors grew more comfortable with higher-for-longer central bank policy along with solid economic fundamentals and a prosperous earnings season.<\/p>\n
\u201cIt\u2019s never where the stock market is that really matters, it\u2019s where the market is priced from where it should be priced,\u201d said economist and market strategist Jim Paulsen, formerly of Wells Fargo and now the author of the Paulsen Perspectives newsletter on Substack. \u201cIf we had these [economic] numbers at any point prior to the Great Recession of \u201980 and \u201909, we would have been heralding nirvana. Really, the fundamental story is pretty darn good.\u201d<\/p>\n<\/p>\n
Passing major milestones such as the 40,000 barrier the Dow Jones Industrial Average eclipsed this week makes for a nice headline, but market experts do not take much else from the move. What really matters is what underpins the market, namely, whether companies are seeing sustainable profits, where monetary and fiscal policy is positioned and […]<\/p>\n","protected":false},"author":0,"featured_media":4536,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[],"class_list":["post-4535","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business"],"_links":{"self":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts\/4535","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/comments?post=4535"}],"version-history":[{"count":0,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts\/4535\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/media\/4536"}],"wp:attachment":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/media?parent=4535"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/categories?post=4535"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/tags?post=4535"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}