The Dow broke 40,000 points for the first time, and technical fundamentals all supported the continued rise

巴倫週刊 ·  May 17 22:31

Source: Barron's
Author: Jacob Sonnenshain

Thursday (May 16),$Dow Jones Industrial Average (.DJI.US)$It rose to 40021 points in the intraday period. This is the first time in the history of the index that it has hit the 40,000 mark, closing at 39,869 points on the same day. Investors can expect the index to continue rising in the future.

At 40,000 points, the Dow rose 23% from its low of 32,417 points at the end of October last year. The Dow hit 30,000 points for the first time in November 2020.

John Lynch (John Lynch), chief investment officer at Comerica Wealth Management, commented, “The Dow hit the 40,000 mark is proof of the power of innovation, profit growth, and the resilience of the American economy.”

Many of the 30 constituent stocks of the Dow have been rising recently.

Stocks rose at a time when the US economy was still growing moderately, but the growth rate was not fast enough to make the market worry that inflation would rise sharply again. This means that although the Federal Reserve is uncertain when to cut interest rates, it is unlikely that it will continue to raise interest rates from now on.

Currently, employment is still growing, but recently released data shows that employment growth is lower than expected, once again showing that the US economy is not hot enough to the extent that the Federal Reserve must raise interest rates. The April inflation data showed that the year-on-year increase in CPI was slightly lower than in March.

Investors continue to buy$Amazon (AMZN.US)$,$Microsoft (MSFT.US)$und$Salesforce (CRM.US)$Big tech stocks, and these companies are expected to see double-digit annual profit growth rates over the next few years by using artificial intelligence to improve products and create new revenue streams.

Shares of companies benefiting from increased consumer and business demand are also rising, such as$Home Depot (HD.US)$,$American Express (AXP.US)$,$Visa (V.US)$ (V),$Caterpillar (CAT.US)$und$Honeywell (HON.US)$.

Bank stocks also rose strongly, with J.P. Morgan Chase (JPM) and Goldman Sachs (GS) rising 18% and 20%, respectively, this year. The performance of mergers and acquisitions was weak last year and began to rebound this year, as buyers had greater confidence in the profit prospects of acquisition targets. At the same time, continued economic growth contributed to the growth of bank loan business.

According to Dow Jones Market Data (Dow Jones Market Data), since the Dow hit 30,000 points, Goldman Sachs contributed 1,500 points to the index, making it the biggest contributor to the Dow during the same period.

The Dow hit 30,000 points for the first time in November 2020
The Dow hit 30,000 points for the first time in November 2020

Of course, a healthy economy and technological innovation don't mean stocks are risk-free.

Borrowing costs will still be higher than before the Federal Reserve began to raise interest rates. Furthermore, the current prices of goods and services are far higher than pre-pandemic levels, weakening consumers' purchasing power.

However, the core PCE price index rose 2.7% year on year in March, below the peak of 6.8% in the summer of 2022. This is a sign that the US economy is returning to normal.

Currently, the Dow's 12-month expected price-earnings ratio is 18.4 times, which is not cheap. FactSet data shows that at the beginning of this round of gains, the Dow's 12-month expected price-earnings ratio was 15.9 times. However, the 18.4 times valuation is not particularly high, and there is room for further growth. The current price-earnings ratio of the Dow$S&P 500 Index (.SPX.US)$12% lower.

Technical analysis also indicates an upward move. Since the end of October last year, the Dow's 200-day moving average has been rising, indicating that in this round of gains, traders use every time they fall back to buy, which in turn boosts the daily average price.

Lynch said, “Both technical aspects and fundamentals (including profit and interest rates) point to a further rise in the Dow in the short term.”


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