In a remarkable turn of events, the Dow Jones Industrial Average briefly surged past the 40,000 mark for the first time in history on Thursday, driven by strong corporate earnings and investor enthusiasm surrounding artificial intelligence. Despite this momentous peak, the Dow closed slightly lower, shedding a few points. The broader market also experienced modest declines, with the S&P 500 and Nasdaq Composite ending the session down slightly. This dip followed a period of sustained gains fuelled by expectations of Federal Reserve interest rate cuts and positive economic indicators, including a smaller-than-expected rise in consumer prices. As the market navigates these economic shifts, investor sentiment remains healthy, reflecting confidence in continued growth and innovation within the tech sector.

Key Takeaways:

  • Dow Briefly Tops 40,000: The Dow Jones Industrial Average reached an intraday high of 40,051.05 before closing slightly lower at 39,869.38, down by 38.62 points or 0.1%. This milestone marks a significant achievement in the bull market that began in October 2022.
  • S&P 500 and Nasdaq Record Highs: The S&P 500 fell 0.21% to close at 5,297.10, while the Nasdaq Composite finished the day down 0.26% at 16,698.32. Both indexes have risen 11% year-to-date, reflecting strong market performance driven by tech stocks and AI advancements.
  • European Markets Close Lower: European stocks ended the session lower as earnings reports dampened the relief rally sparked by softer-than-expected US inflation data. The pan-European Stoxx 600 index declined by 0.24%, with mixed performances across sectors. Oil and gas stocks fell by 1%, while mining stocks gained 0.9%. Major bourses closed in the red, with Germany’s DAX down 0.76%, France’s CAC 40 retreating by 0.63%, and the UK’s FTSE 100 decreasing by 0.08%. 
  • Asian Markets Rise: Asia-Pacific markets experienced gains following Wall Street’s record highs driven by soft inflation data. Japan’s Nikkei 225 rose 1.39% despite first-quarter GDP contracting at an annualized rate of 2%, higher than the expected 1.5%. The GDP contraction could impact the Bank of Japan’s interest rate policies. The broader Topix index edged up 0.24%. Hong Kong’s Hang Seng index increased by 1.43%, while Mainland China’s CSI 300 index gained 0.39%. South Korea’s Kospi and Kosdaq rose 0.75% and 0.8% respectively. In Australia, the S&P/ASX 200 index climbed 1.65%.
  • US Treasury Yields Increase: US Treasury yields moved higher as investors digested recent economic data. The yield on the 10-year Treasury note increased by more than 2 basis points to 4.381%, while the 2-year Treasury yield rose by 6 basis points to 4.797%. These movements reflect the market’s reaction to ongoing economic developments and inflation trends, influencing expectations for future Federal Reserve monetary policy actions.
  • Oil Prices Climb: Crude oil prices rose on Thursday as US stockpiles fell for the second consecutive week, indicating potential increases in demand. The WTI crude futures for June delivery settled at $79.23 per barrel, up 60 cents or 0.76%. Brent crude futures for July delivery increased by 52 cents or 0.63%, closing at $83.27 per barrel. Year-to-date, WTI has gained 10.58%, while Brent has advanced 8%. 
  • Weekly Jobless Claims Fall: Initial claims for US state unemployment benefits fell by 10,000 to a seasonally adjusted 222,000 for the week ended May 11, indicating underlying strength in the labour market. The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased by 13,000 to 1.794 million. The labour market is gradually easing, with recent trends suggesting potential Federal Reserve rate cuts in September.

FX Today

  • Gold Price Declines as US Treasury Yields Bounce Back: Gold’s recent uptrend remains intact despite a retreat below the $2,380 level. From a market structure perspective, if XAU/USD drops below the latest higher low of $2,332 seen on May 13, it could signal a deeper correction. In this scenario, the next support levels are at the May 8 low of $2,303, followed by the 50-day Simple Moving Average (SMA) at $2,284. Conversely, if buyers reclaim the $2,400 level, further gains could challenge the year-to-date high, with the immediate resistance zones being the April 19 high of $2,417 and the all-time high of $2,431.
  • EUR/USD Falls Passive: EUR/USD retreated modestly but held steady above 1.0865. Bulls must ensure prices remain above this threshold to prevent a potential seller resurgence; a failure to do so could trigger a pullback towards 1.0810/1.0800. On the upside, if buying momentum resumes, overhead resistance might materialise near 1.0980, defined by the March swing high. Further strength could see the pair targeting 1.1020, aligned with a dynamic trend line from the 2023 peak.
  • GBP/USD Ticks Lower: GBP/USD closed lower on Thursday after a strong performance earlier in the week, with buyers pausing to assess the outlook following the recent rally. If bullish momentum resumes, resistance is expected at 1.2720 and 1.2800. Conversely, if there is a meaningful bearish reversal, support stretching from 1.2615 to 1.2590 could provide stability and prevent a deeper retrenchment. In the event of a breakdown, attention will shift towards the 200-day simple moving average, positioned around 1.2540, with further losses potentially extending to 1.2515.
  • USD/JPY Regains Upside Traction: USD/JPY regained upside traction, recovering part of the ground lost after Wednesday’s sell-off, advancing beyond the 155.00 barrier amidst the Dollar recovery and an uptick in yields. The dollar dropped 1% against the yen on Wednesday but rose 0.28% on Thursday to 155.30, after having fallen as low as 153.6 due to weak Japanese growth figures. ECB Governing Council members de Cos and Centeno suggested imminent interest-rate reductions, with swaps discounting a 97% chance of a 25 bp rate cut at the next meeting on June 6. 
  • USD/CAD Churns Near 1.3600 Resistance: USD/CAD continues to hover near the 1.3600 level, facing technical resistance around 1.3660. The pair remains below the 200-hour Exponential Moving Average (EMA) at 1.3664. The Canadian Dollar tested a four-week high against the US Dollar on Thursday, pulling the USD/CAD pair down to 1.3590 before recovering into positive territory. The USD/CAD pair is battling near-term bearishness, trading south of the 50-day EMA at 1.3637, down 1.7% from the last swing high above 1.3840.

Market Movers:

  • Walmart (WMT) Rises on Strong Q1 Results: Walmart’s shares surged nearly 7% following its robust fiscal first-quarter results. The retailer reported total US comparable sales, excluding gas, increased by 3.90%, surpassing the consensus estimate of 3.42%. Walmart’s stock has gained 21% year-to-date, reflecting its strong market performance.
  • BT (BT) Soars on Cost-Cutting Announcements: BT’s stock skyrocketed 17%, marking its largest daily gain since at least 2006. The surge followed the company’s announcement of a new cost-cutting program, which was well-received by investors.
  • EasyJet (EZJ) Drops on Larger-Than-Expected Loss: EasyJet shares fell 7.2% before paring losses slightly after the low-cost airline reported a pre-tax loss of £350 million ($443 million) for the first half of the year, exceeding analyst expectations for the loss.
  • Amazon (AMZN) Continues Upward Trend: Amazon, which joined the Dow in the first quarter, has seen its stock rise over 20% year-to-date. The company’s strong performance is bolstered by investor optimism around its market position and future growth prospects.
  • Deere & Co (DE) Falls on Profit Forecast Cut: Deere & Co shares dropped more than 4% after the company reduced its full-year profit forecast to about $7.0 billion from a prior range of $7.50 billion to $7.75 billion. This downward revision concerned investors, leading to a sell-off.
  • Cisco Systems (CSCO) Declines on Weak Guidance: Cisco Systems fell over 2%, leading the Dow Jones Industrial’s losers. The decline came after the company forecasted Q4 revenue of $13.40 billion to $13.60 billion, with the midpoint below the consensus estimate of $13.54 billion.
  • Meta Platforms (META) Falls Amid EU Probe: Meta Platforms’ shares fell over 1% after the European Union announced a probe into the company over concerns that its algorithms might be exploiting children’s vulnerabilities to get them addicted to Facebook and Instagram.
  • Chubb (CB) Increases Following Berkshire Hathaway Investment: Chubb shares rose more than 4% after Berkshire Hathaway disclosed a $6.7 billion stake in the company, boosting investor confidence and driving the stock higher.
  • Marvell Technology (MRVL) Leads AI Hardware Gains: Marvell Technology climbed over 4%, leading the Nasdaq 100 gainers. Intel (INTC) and Advanced Micro Devices (AMD) also saw increases of more than 2% and 1%, respectively, driven by positive sentiment towards AI hardware providers.
  • 3M Co (MMM) Rises on Upgrade: 3M Co shares increased over 3% after the stock was upgraded from “hold” to “buy” with a price target of $140, reflecting positive expectations for the company’s performance.

As Thursday’s trading session concludes, the Dow’s brief ascent above the 40,000 mark underscores a market driven by robust earnings, particularly from Walmart, and growing enthusiasm for artificial intelligence. Despite closing slightly lower, the significant gains in tech stocks and investor optimism surrounding potential Federal Reserve rate cuts reflect a resilient market sentiment. European and Asian markets exhibited mixed performances, influenced by earnings reports and economic data. Meanwhile, rising US Treasury yields and changing oil and gold prices continue to shape the broader economic landscape. As investors navigate these dynamic conditions, the balance between caution and hope will be critical in the coming weeks.