Dow closes above 40,000 as a rally breaks out beyond mega-cap tech

• The Dow Jones rose on Friday and stocks broadly rose as interest rate cuts intensified.

• New data showed that consumer inflation was cooling and there was only a mild increase in producer prices.

• The small-cap Russell 2000 jumped for a second day, rising more than 1% after rising 4% on Thursday.

Stocks rose at the end of the week, with the Dow Jones Industrial Average rising more than 200 points to close above 40,000 for the first time since mid-May.

Investors cheered the broadening of the 2024 stock market rally, which was largely concentrated among mega-cap tech names linked to AI trading.

Every sector of the S&P 500 rose on Friday, with 90% of the names in the index posting gains. Small caps also rose for a second straight day as the Russell 2000 returned 1% after rising 4% on Thursday.

Behind the rally are encouraging data that pave the way for a rate cut in September. Consumer prices rose less than expected last month, while wholesale inflation was hotter, albeit only slightly and not enough to derail an upcoming rate cut, market professionals said Friday.

According to the CME FedWatch toolMarkets see a nearly 90% chance that the Federal Reserve will cut rates at the September FOMC meeting.

The odds of a jumbo 50 basis point rate cut at the December meeting have also risen, with traders holding the highest odds for a drop in the Fed Funds rate to 4.50%-4.75% at the latest meeting of the year.

Here’s where the US indexes stood at 4pm on Friday:

Bond yields have fallen as the market adjusts to the favorable data and new interest rate outlook. The interest-rate-sensitive two-year Treasury note has fallen about 14 basis points in a week, and the 10-year Treasury bond has fallen more than eight basis points in that time. The 10-year yield fell to 4.182% on Friday.

As the interest rate outlook improves, investors see greater potential for stocks that have been hampered by the Fed’s tighter policy to rise, allaying some fears of heavy market concentration among the likes of Nvidia and other tech giants.

Here’s what else happened today:

In commodities, bonds and crypto:

• Oil futures fell. West Texas average Crude oil fell 0.5% to $82.23 per barrel. Brent crude oilthe international benchmark, fell 0.4% to $85.07 per barrel.

• Gold fell to $2,418 an ounce.

• The yield on ten-year government bonds fell to 4.18%.

• Bitcoin rose 0.5% to trade at $57,836.

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