Daily Market Notes | 5-minute read

May 20, 2024

By Donald Selkin | Chief Market Strategist

DOW: 40,019.10

S&P: 5,319.29

Nasdaq: 16,783.68

10YR T-Note: 4.45%

Bitcoin: 67,388.90

VIX: 12.38

Gold: $2423.74

Crude Oil: $79.81

Prices Current as of 11:50 am

Source: CNBC

40+ Years on

Don Selkin, the creator and innovator of the "Fair Value" numbers, as its Chief Market Strategist on the Newbridge platform has given CNBC and its Predecessor, these numbers every day for the over 40 years - never missing a single day, as well as given the fair value for the Nasdaq 100 futures since their introduction in 1996 and the Dow Jones stock index futures since 1997. Mr. Selkin has also been quoted in several publications including but not limited to Bloomberg News, New York Post, Reuters, and The New York Times. Mr. Selkin's Fair Value numbers are included in the U.S.
Futures Report broadcast on CNBC every day before the market
opens attributing "Newbridge Securities" as the source. In addition, NSC provides to its professionals, their clients and the public access to Don Selkin's more in depth financial market views.

The Dow Jones Industrial Average closed above 40,000 late on Friday, the latest jump in what has been a surprisingly good year for the market.

But just like New Year’s represents an arbitrary point in time in the Earth’s revolution around the sun, such milestones for the Dow don’t mean much inherently.

For one, with just 30 companies, the Dow represents a tiny slice of Corporate America. For another, almost no one’s 401(k) account sees its performance depend on the Dow, which has become more of a relic used for historical comparisons.

What’s more important is that the Dow at 40,000 is one example of how the broader U.S. stock market is setting records.

Here’s a look at what the Dow is, how it got here and how its use among investors is on the wane: It is a measure of 30 established, well-known companies. These stocks are known as “blue chips,” which are supposed to be on the steadier and safer side of Wall Street.

The index contains not just industrial companies like CAT and HON despite the name.

The roster has changed many times since the Dow began in 1896 as the U.S. economy has transformed. Out, for example, was Standard Rope & Twine, and recently have been big technology companies.

AAPL, MSFT and AMZN are some of the newer-economy names currently in the Dow. The financial industry also has a healthy representation with AXP, GS, JPM and TRV. So does health care with AMGN, JNJ, MRK and UNH.

The Dow crossed its latest 10,000 point threshold briefly on Thursday and closed above 40,000 Friday — at 40,003.59 to be exact. It took about three and a half years to make the leap from 30,000 points, which it first crossed in November 2020.

It has kept chugging mostly higher despite the worst inflation in decades, painfully high interest rates meant to get inflation under control and worries that high rates would make a recession inevitable for the U.S. economy.

Companies are now in the midst of reporting their best profit growth in nearly two years, and the economy has managed to avoid a recession, at least so far.

The Dow represents only a narrow slice of the economy. Professional investors tend to look at broader measures of the market, such as the S&P index, which has nearly 17 times the number of companies within it.

More than $11.2 trillion in investments were benchmarked to the S&P at the end of 2019, according to estimates from S&P Dow Jones Indices. That is 350 times more than the $32 billion benchmarked to the Dow Jones Industrial Average.

Investors’ 401(k) accounts are much more likely to include an S&P index fund than anything tied to the Dow. The S&P crossed above its own milestone Wednesday, topping 5,300 points for the first time.

That is what more investors care about as 100-point milestones matter for the S&P as little as others, but the fact that the S&P is higher than ever matters a lot.

The performances of these two major indices have historically tracked relatively closely with each other, but the S&P has been better recently. Its 27.5% rise for the last 12 months easily tops the 19.7% gain for the Dow.

That is in part because the S&P has more of an emphasis on Big Tech stocks, which were responsible for most of the S&P 500’s gains last year. Hopes for an easing of interest rates by the Federal Reserve and a frenzy around artificial intelligence technology have pushed them to dizzying heights.

The Dow reflects none of the movements of such marquee stocks as GOOG, META, NFLX or NVDA.

The Dow and S&P 500 also take different approaches to measuring how an index should move. The Dow gives more weight to stocks with higher price tags. That means stocks that add or subtract more dollars to their stock price push and pull it the most, such as UNH and its $525 stock price. A 1% move for that stock, which is about $5, packs a radically harder punch than a 1% move for WMT, which is about 64 cents.

The S&P meanwhile, gives more weight to stocks depending on their market capitalization, namely the price of the stock times the number of shares outstanding. That means a 1% move for WMT carries more weight than a 1% move for UNH because WMT is a slightly bigger company by total market value.

The Dow should always be a factor because it is so old and has a longer track record than other measures of the market.

For a while, a triple-digit move for the Dow also offered an easy shorthand way to show the stock market was having a big day. Now, though, it means much less. A 100 point swing for the Dow means a move of less than 0.3%.

The first quarter of 2024 earnings season is just about over, with retailers continuing to bring up the rear and the schedule for this week is as follows: tonight – PANW, ZM; Tuesday – AZO, LOW, M and TOL; Wednesday – the big one this week, namely NVDA plus ADI, SNOW, TGT and TJX; Thursday – BJ, INTU, RL and WDAY.

Economic reports will have: Wednesday – April existing home sales, release of minutes from last Fed meeting; Thursday – weekly jobless claims, April new home sales; Friday – April durable goods orders, final May U. of Michigan Consumer Sentiment Index.

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