Dividend Stocks

The Dow Just Hit 40,000 for the First Time. Will the Rally Continue?

Wall Street is abuzz today as the Dow Jones Industrial Average hit 40,000 for the first time ever. Indeed, at around 11:30 a.m. EST, the Dow briefly crossed the 40,000 threshold.

The Dow hitting 40,000 marks the result of a lengthy bull run that began in October 2022. This isn’t the first time the average has neared the 40,000 psychological barrier, and the index actually got to 39,800 just this past March before a swarm of pressing economic data pulled stocks back down.

However, after a string of strong earnings reports, added to a fairly promising consumer price index (CPI) inflation report released Wednesday, stocks have definitively been on the up and up.

“This achievement is a testament to the powers of capital formation, innovation, profit growth and economic resilience,” said John Lynch, Chief Investment Officer at Comerica Wealth Management. “The recent technical momentum and fundamental strengths, including earnings and interest rates, suggest further near-term gains.”

The Dow isn’t alone at the top, either. Both the S&P 500 and Nasdaq Composite are trading at respective highs, with the former closing above 5,300 for the first time in its history on Wednesday. The S&P and Nasdaq are up about 11% this year, while the Dow is up around 6% at the time of writing.

Is the Dow 40,000 Just the Beginning?

This week’s rally is definitively the product of changing rate-cut expectations. Indeed, the CPI has dramatically raised Wall Street’s hopes of rate cuts to come, with many analysts pegging September for the first rate reduction. This comes after many considered the possibility that the Federal Reserve may not lower rates at all this year.

That said, the new-found optimism is founded on a pretty tenuous premise. The fact is, one mildly encouraging inflation reading is hardly the stuff of bullish dreams. Whether the rally continues to reach new highs may well depend on if yesterday’s inflation reading was a flash in the pan or the start of a long-awaited deceleration in price growth. In that regard, it’s likely too early to tell.

“Investors should be careful not to sprint on the victory lap, though, as a combination of geopolitics, valuation, and market interest rates may lead to a sudden directional shift,” Lynch said.

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

With degrees in economics and journalism, Shrey Dua leverages his ample experience in media and reporting to contribute well-informed articles covering everything from financial regulation and the electric vehicle industry to the housing market and monetary policy. Shrey’s articles have featured in the likes of Morning Brew, Real Clear Markets, the Downline Podcast, and more.