Daily Brief - Dow Flirts with 40,000

TLDR: The Dow Jones Industrial Average broke past the 40,000 threshold for the first time ever on Thursday, driven by an unexpectedly positive inflation report and weaker-than-anticipated April retail sales data, fueling hopes for rate cuts by the end of the year.

The blue-chip index briefly crossed the key threshold in morning trading but slid back to close at 39,869, down 38 points, or 0.1%.

All three major indexes closed lower on Thursday. The S&P 500 ended the day down 0.2%, and the Nasdaq Composite was 0.3% lower. Ten out of 11 S&P 500 sectors closed lower, with consumer staples being the only top gainer.

Markets had soared to new record highs on Wednesday after the latest Consumer Price Index showed a cooldown for the first time in months. Another crucial data point added to the market's optimism: April retail sales came in significantly weaker than expected, suggesting that consumers are pulling back on spending.

The CPI report, taken together with retail sales, supports a Fed rate cut in the fall. Markets are discounting a cut in September and have moved to price in a second cut by December.

The Dow 40,000 milestone underscores the resilience of the US economy, despite numerous recession forecasts.

Scenario Spotlight: Dow's Next Move

The chart above displays the median 2-week response from the Dow Jones index, based on past data from where the index's volatility was near lows.

Market Movers: Hot Picks and Passes

Here are the top 3 and bottom 3 performing Dow Jones stocks over 6 months, based on past periods of low index volatility:

Top 3 Performing Assets:

1. Visa - Return: 13.41%
2. Amazon - Return: 13.34%
3. Salesforce - Return: 13.32%

Bottom 3 Performing Assets:

1. Walmart - Return: 2.04%
2. IBM - Return: 1.57%
3. Dow Inc - Return: -2.37%

Earnings Spotlight: Trip.com reports on Monday

Let's see how Trip.com fares as data from this morning shows that China retail sales fell and were much lower than expected. Retail sales rose by 2.3% in April from a year ago, according to the National Bureau of Statistics, significantly below the 3.8% forecasted by a Reuters poll.

Given Trip.com's reliance on consumer spending for travel services, this slower growth could pose challenges. Lower retail sales suggest weaker consumer confidence, potentially reducing demand for Trip.com's offerings. Earnings will be crucial to understand if the return of the Chinese economy is actually on track.