On the morning of Thursday, May 16, the Dow Jones index crossed the 40,000-point mark for the first time in its history.
The mentioned result is because inflation data in the United States in April turned out to be very optimistic compared to the figures of the previous three months of the current year.
The blue-chip index rose by about 114 points or 0.3%. By mid-morning, the mark of 40,022 points had been reached.
The consumer price index for April showed a decline for the first time in several months. The markets reacted to the relevant news by rising to record highs. To a large extent, the current dynamic is related to the hopes that have returned to life that as early as September 2024, the Federal Reserve System can begin implementing a monetary policy easing strategy, which implies cutting interest rates. After disappointing inflation data in the United States in March, the corresponding expectations weakened. The April result was what can be symbolically called a second wind in hopes of lowering the cost of borrowing in 2024.
Last month, consumer prices in the United States increased by 0.3%. The relevant data were released by the Bureau of Labor Statistics this week. In April, the growth rate of consumer prices slowed down compared to the figures for the previous months of 2024. This result exceeded the preliminary expectations. FactSet’s consensus forecast predicted that consumer prices would rise by 0.4% in April.
Retail sales in the United States last month were significantly weaker than previous expectations. This result is evidence that consumers are cutting back on spending that drives the economy. At the same time, economists predicted that spending would rise by 0.4%.
Gary Pzegeo, head of the fixed income unit at CIBC Private Wealth US, says that the April data is the first good report on the consumer price index in four months of 2024. Separately, it was noted that the market reacts positively to relevant information. Gary Pzegeo says that the April consumer price index, combined with retail sales data, increases the likelihood that the Fed will decide to cut interest rates in the fall. Markets are discounting a cut in September and have moved to price in a second cut by December.
The markets were also bolstered by the profits of major retailers such as Walmart. The profit of these companies exceeded the preliminary expectations of experts. The share prices of airlines, utilities, and Big Tech brands mostly showed growth.
Moreover, investor sentiment improved significantly on Thursday amid statements from Fed officials. New York Fed President John Williams, in a comment to the media, said that the current tendencies of inflation look good. Richmond Fed President Tom Barkin positively assessed low retail sales in April.
The new record for the Dow Jones index, made of 30 blue-chip stocks, also has symbolic significance as a shift for investors who continue to positively perceive the condition of the US economic system, despite circumstances such as rising tensions in the plane of geopolitical relations, still undefeated inflation, high interest rates and the risk of recession, which remains a realistic scenario although not in the short term.
There is currently a significant contrast between the sentiment on Main Street and Wall Street in the United States. In the US consumer environment, what can be described to some extent as a deterioration in morale is now being recorded. In this environment, sentiment is at its lowest level in the last six months. The relevant information is contained in the results of a consumer survey conducted by the University of Michigan. This survey was published in May.
There is widespread concern in American society about the condition of the country’s economic system. The corresponding sentiment is because, in January-March 2024, the results of countering inflation worsened in the United States. Polls conducted by the media indicate that many residents of the US reckon that the country’s economy is headed in the wrong direction. Also, some respondents said that a recession scenario has already materialized in the United States. It is worth noting that no objective figures indicate that the corresponding state of affairs is an economic reality.
In February, during the mentioned surveys, it was found that almost half of the residents of the United States characterized the economic situation in the country as a downturn. Also at that time, about a quarter of respondents stated that the situation in the relevant sphere had stabilized.
The current year has already become a period of a high-speed dynamic for the markets. From January 1 to April, the S&P 500 index hit 22 new records. However, over time, the markets have left the territory of stability. The corresponding tendency is because investors have become afraid of longer-term high inflation and that interest rates will remain at a high level for longer. The April consumer price index gave rise to an improvement in such sentiments.
Tyler Schipper, professor of economics at St. Thomas University in Minnesota, during a conversation with media representatives, said that the mentioned information from last month gives the impression that perhaps the negative indicators of the first three months of 2024 were some kind of deviation and not evidence of a really stagnant inflationary environment.
It is worth noting that overcoming the 40,000 mark by the Dow Jones index has no significant practical value for investors. At the same time, the corresponding indicator is very positive news for the public and may become a factor in spreading optimistic sentiments beyond Wall Street.
Art Hogan, chief market strategist at B. Riley Financial, says that the 40,000 mark is evidence that the economic system of the United States was stable at a time when the opinion was actively circulating that the recession had already become a reality or was approaching materialization. According to the expert, the overarching importance of the result recorded on Thursday is that, for at least one day, news from Wall Street is transported to Main Street. Art Hogan said that the 40,000 mark is also a confirmation that corporate earnings are growing and robust confidence among investors remains.
