A popular barometer for the U.S. stock market, the Dow Jones Industrial Average (DJIA) index, closed above 40,000 for the first time Friday. As it always does when the index crosses big, round numbers, hitting the milestone grabs news headlines and feels reassuring to investors.
The DJIA crossed the 30,000 threshold on November 24, 2020. More than two-thirds of the Dow components have shown gains since then. The rally from 30,000 to 40,000 appears to be broad-based, which is encouraging because it suggests the growth is not attributable to only one or two companies or industries.
Other U.S. stock indexes are showing signs of strength too. Indexes are generally correlated. The S&P 500 index gained 1.5% last week, while the Nasdaq Composite advanced 2.1%. All three indexes remain at or near their records reached this past week.
The fuel behind this month’s good performance might be attributed to renewed hopes that the Federal Reserve will cut interest rates later this year. A survey of fund managers found that 82% expect the Fed to cut interest rates in the second half of this year, strategists at Bank of America wrote in a research note this past week.
Watching a stock index reach a round number like 40,000 doesn’t mean you should necessarily do anything. The number itself is essentially arbitrary. However, there is no harm in letting these milestones serve as reminders to revisit your investment strategy to make sure it’s still suitable for you. Let us know if we might be helpful in that way.
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