The oldest American equity index, the Dow Jones Industrial Average, broke through the 40,000 mark for the first-time on Thursday. It then slipped back to its second highest closing level.
The Dow Jones Industrial Average, which began with 12 companies in New York in 1896, reached 40,040 in morning trading but reversed these early gains to end the session down 38.62, or 0.1 percent, at 39.869.38. It had closed Wednesday at a record high, its eighth of the year.
In March 2020, the index briefly dropped below 20,000 at the start of the global Covid pandemic. This year, it is up 5.8 percent.
Investors are more confident that the largest economy in the world has avoided recession due to the reasonable economic growth in 2018. GDP increased at an annualized rate of 1.6% in the first quarter. In April, the rate of inflation in America fell from 4.4% to 3.4%. In June 2021, inflation reached a record high of 9.1 percent.
Although many companies were cautious in their outlooks for the remainder of the year, the first-quarter earnings period was generally positive. The Dow, along with its peers, the Nasdaq Composite, and the S&P 500 index, have been driven to new records by the prospect of rate cuts in the summer.
While inflation remains stubbornly high, the US Federal Reserve is cautious in lowering the cost of borrowingfrom the current range of 5.25 to 5.5 percent, which is the highest for more than 20 years. The equity markets reached new highs after the Wednesday announcement of the decline in inflation.
According to the CME FedWatch Tool, investors are betting that the Fed will cut interest rates by two quarter points this year. The first rate reduction is expected in September.
The S&P 500 index, which is widely regarded to be a barometer for the health of American corporations, dropped 11.05 points or 0.2 percent on Thursday night, but remains 11.1 percent higher this year. The Nasdaq, which is dominated by technology, fell 44.07 points or 0.3 percent to 16,698.32 but still remains ahead of the market this year.
Silas Myers is the chief executive and portfolio director at Mar Vista Investment Partners, Los Angeles. He said, “The current climate seems to be focused on what Fed may or may NOT do. We had started the year expecting that the Fed would cut rates as much as six times, but that has moved down to one or even two times more recently.”
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