The Dow Jones Industrial Average breached the 40,000 level for the first time ever in mid-May, which was sort of an inevitability since the long-term trend for U.S. stocks has always been up and to the right.
Nevertheless, anytime the Dow notches a record-high number that ends in a series of zeroes, market participants and financial media are required to mark the occasion. Although numbers with such neat and tidy endings are no more salient for investors than those concluding with any of the other digits we employ in our decimal positional numeral system, well … they seem to give us a feeling of accomplishment.
After all, whenever the Dow crosses such a round-number level, folks say that it's psychologically important. While proving such a thing is a matter for researchers in the behavioral sciences, it is undeniably true that market sentiment matters. If nothing else, people like new highs, and that seems to be especially the case with ones they can remember.
We also know from technical analysis that fresh highs tend to beget even more highs. So the market has that going for it; which is nice.
Since Dow 40,000 is a thing whether it should be or not, we checked in with investment officers, strategists, economists and other deeply knowledgeable observers to get their takes on what the level means for stocks going forward. Please see a selection of commentary, sometimes edited for brevity or clarity, below.
Experts on Dow 40,000
"The Dow Jones Industrial Average (DJIA) has gotten a lot of attention in flirting with the 40,000 level, and Friday’s close above it could be an additional boost to investor confidence. While there have been notable exceptions, the DJIA has tended to perform better than normal after breaking through round number levels." – Tim Hayes, chief global investment strategist at Ned Davis Research
"Dow 40,000 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. Investors who were patient and ignored all the scary headlines were once again rewarded, just as they have been throughout history. Can stocks keep going? We think they can and more strength in 2024 is likely. Earnings continue to surprise to the upside and balance sheets for corporate America are in great shape. While the consumer backdrop might have some cracks, it is still strong thanks to a very healthy employment backdrop. Then consider lower rates are likely coming, thanks to inflation that should drastically improve in the second half of this year. It is an election year, so expect some bumps, but overall the bull market that started in October 2022 is alive and well in our view." – Ryan Detrick, chief market strategist at Carson Group
"Our own take is that the current market setup is an amalgam of the 1980s (expectations for lower interest rates) and the 1990s/2010s (long periods of economic growth plus tech-led innovation). There will be bumps on the road, as always, but we remain positive on U.S. large-cap stocks." – Nicolas Colas and Jessica Rabe, co-founders of DataTrek Research
"It's pretty much been a rally in everything in the past six months, with many major averages reaching all-time highs – including the venerable Dow Jones Index touching the high-profile 40,000 mark. Ultimately, it is this amazing resiliency of the U.S. economy in the face of the many challenges – inflation, geopolitical turmoil, big rate hikes – that has keyed the rebound and new record highs for equities. What could possibly derail this freight train? The U.S. consumer, armed with pandemic savings, has played a massive role powering the growth, but those excess savings have dwindled away. Fiscal largesse has been a second major pillar of support, but the $1.6 trillion budget deficit has (thankfully) stopped growing. And, markets may have little tolerance for any new stimulus on this front. The wide variety of geopolitical risks may be the most serious challenge to this cycle. However, the key point is how markets have readily climbed this wall of worry since 2022." – Douglas Porter, chief economist at BMO Capital Markets
"What was once an incomprehensible level is now at our doorstep. This achievement is a testament to the powers of capital formation, innovation, profit growth and economic resilience. To be sure, monetary and fiscal policy have been tailwinds with unprecedented policies over the past 10 to 15 years. The recent technical momentum and fundamental strengths, including earnings and interest rates, suggest further near-term gains. 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." – John Lynch, chief investment officer at Comerica Wealth Management
"Breaking the 40,000 barrier is a big psychological boost for the bulls as round numbers hold special significance in people's hearts and minds. We are in a bull market and people are showing some irrational exuberance (meme stocks) and dismissing bad news (slowing retail sales) and focusing on good news (slightly slowing inflation). No one knows how overvalued a market may become except in hindsight, but markets are now headed into overvalued territory so it's prudent to dollar cost average and be more discerning when investing in equities and we wouldn't just buy the whole index at this point (avoid passive)." – Chris Zaccarelli, chief investment officer at Independent Advisor Alliance
"U.S. markets may await their next catalyst for direction. Rates appear fairly priced, though with stocks already sitting at all-time highs, it is not clear that there is enough impetus for the time being for price action to break substantially higher, unless those positioned more defensively are pushed to capitulate. As risk asset prices continue to rally, we think it will be appropriate to maintain discipline and look to reduce exposure on strength." – Mark Dowding, chief investment officer, BlueBay fixed Income, RBC Global Asset Management
"The Dow Industrials broke through 40,000 for the first time and then fell back. It doesn't matter because the Dow is pointless." – John Authors, senior editor for markets at Bloomberg and Bloomberg Opinion columnist
