The Dow Jones Industrial Average broke above the 50,000 level for the first time, as investors bid up the blue-chip gauge amid optimism over the US economy and corporate earnings.
The 30-member index — comprised of household names like Goldman Sachs Group Inc., Coca-Cola Co. and JPMorgan Chase & Co. — rose 2.5% to 50,115.67 on Friday. The gauge is up 4.3% this year, outperforming all major US equity indexes.
The average, which fell below 40,000 in April when President Donald Trump unveiled sweeping tariff plans, has since rallied 33% on a combination of interest-rate cuts and increasing optimism on the prospect of economic growth.
In the last six months, sharp gains from Goldman and Caterpillar Inc. have driven more than half of the advance in the blue-chip index. Shares of Goldman have climbed about 30% in the period, while the maker of signature yellow diggers, Caterpillar, has gained almost 70%.
“Hitting 50,000 makes for a lot of bullish headlines - and President Trump will push it all he can,” said Matt Maley, chief market strategist at Miller Tabak + Co LLC. “As much as the tech group is still critically important, these moves confirm the rotation in the market seems to be working.”
The Dow could reach 70,000 points by the end of the decade in a “Roaring 2020s” scenario where the US economy continues to expand through the period, according to Ed Yardeni, president and chief investment strategist at Yardeni Research Inc.
“We are pleased to see that Dow Theory agrees with our upbeat outlook,” Yardeni said in a note last month. “Such mutual confirmations have signalled more economic growth ahead,” Yardeni said.
Coined around the turn of the 20th century by Charles Dow, who invented the Dow Jones Industrial Average and the Dow Jones Transportation Average, the Dow Theory states that a move by the industrials index must be confirmed by the transportation index, or vice versa, for a true market trend to take hold. The transportation index has gone from one record to the next this month.
The Dow has climbed by double digits for three straight years, albeit at a slower pace than the S&P 500 and tech-heavy Nasdaq 100.
A key difference between the Dow and the broader S&P 500 is the methods used to weight their constituent stocks. The Dow is price-weighted, meaning that changes in the highest-priced stocks have a greater impact on the index level than price changes in the lower-priced stocks.
That means Nvidia Corp. makes up just 2.3% of the Dow because its shares trade at a lower price than Johnson & Johnson. The chipmaker has a 7.6% weight on the S&P 500, which is market-cap weighted.
The Dow hitting a record while the S&P 500 and Nasdaq 100 remain below their recent peaks is a “testament to the market's rotation,” said Steve Sosnick, chief strategist at Interactive Brokers.
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