Experts say the Dow's milestone reflects market strength but stress the importance of economic factors
The Dow Jones Industrial Average surpassed the 40,000 mark this week, a milestone that, while significant, does not alter the fundamentals of the market, as reported by CNBC.
Market experts stress that the true importance lies in the underlying economic factors, such as company profits, monetary and fiscal policies, and the overall health of the economy, particularly the labour market.
Ryan Detrick, chief market strategist at Carson Group, remarked, “Forty thousand is a great milestone, but at the end of the day, there isn’t much difference between 39,999 and 40k. 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.”
Despite stumbling through 2022 with fears of a recession, the anticipated economic downturn did not materialize in 2023. Instead, corporate profits stabilized, and fiscal measures from Congress helped mitigate the impact of higher interest rates.
Additionally, the technology sector, driven by advances in artificial intelligence, provided significant support to the market.
Veteran market analyst Ed Yardeni, head of Yardeni Research, noted that investors grew weary of the persistent pessimism that characterized 2022 and 2023. “Investors just got tired of being scared about all these pessimistic thoughts that were flying around,” he said.
As a result, the market began to focus on a more optimistic future, driven by technological advancements and increased productivity.
The Dow's performance, although notable, has not matched the gains seen in other major indices. The Dow has risen nearly six percent in 2024 and over 19 percent in the past year.
However, the S&P 500 and the Nasdaq Composite have seen even greater increases, with the S&P 500 up 11 percent in 2024 and 27 percent over the past year, and the Nasdaq surging 11 percent and 33 percent, respectively.
Liz Ann Sonders, chief market strategist at Charles Schwab, pointed out that the Dow does not capture the full scope of market activity and often includes stocks that have already peaked.
“People don’t focus on the Dow that much, certainly not younger investors,” she explained. “For younger investors, Nasdaq is the proxy that they think of. But all else being equal, round numbers boost psychology.”
Looking ahead, Sonders emphasized the importance of the factors driving market growth, such as continued disinflation and moderate economic growth.
She cited sentiment surveys, like those from the American Association of Individual Investors, which show a balanced but generally positive outlook among investors.
Economist and market strategist Jim Paulsen, author of the Paulsen Perspectives newsletter, underscored that the market's position is less important than its alignment with economic fundamentals.
“It’s never where the stock market is that really matters; it’s where the market is priced from where it should be priced,” he said.
According to Paulsen, the current economic numbers are quite favourable, reminiscent of the pre-Great Recession era. “Really, the fundamental story is pretty darn good,” he concluded.
