Wall Street advanced into uncharted territory on Thursday, with the Dow Jones Industrial Average topping 40,000 for the first time after a blowout earnings report from Walmart cast a positive light on the U.S. economy.

"The more important messaging from achieving one of these milestones is that corporate America is in pretty good shape," said Art Hogan, a managing director and chief market strategist at B. Riley Financial. "It's like getting a gold star in school — guess what, things are OK." 

Investors expect "soft landing"

Ryan Detrick, chief market strategist at Carson Group, noted that stocks have continued climbing as the U.S. seems headed for a so-called soft landing in which inflation recedes to more normal levels and economic growth remains healthy. Consumer spending and job gains, while slowing, also remain robust enough to stave off a prolonged slump even as the Federal Reserve pushes back its timeline for cutting its benchmark interest rate.

"Think about how many people were talking about recessions and bear markets all last year — now we are once again back to new highs," he said. "Investors who were patient and ignored all the scary headlines were once again rewarded, just as they have been throughout history."

The Dow hit the historic mark as Walmart jumped 7% after delivering robust first-quarter results. After hitting a high of 40,051, the index turned lower to close at 39,869, down 38.6 points, or 0.1%, on the day. The big-box retailer reported a large jump in e-commerce sales, as well as making inroads with high-income shoppers. 

"These are not inflation-driven results," Walmart CEO Doug McMillon told analysts on an earnings call.

The S&P 500 and Nasdaq Composite also rose to record heights before paring their gains, ending 0.2% and 0.3% lower. 

A slowly cooling, but still resilient, economy has supported corporate earnings even as expectations of five or six interest rate cuts by the Fed this year have ebbed. Odds of a rate cut in September increased some after data released on Wednesday showed a slight moderation in consumer prices in April.  

"The reestablishment of a disinflation trend in the coming months should allow the Fed to start easing policy in September," according to Solita Marcelli, chief investment officer Americas, UBS Global Wealth Management, who still expects Fed cuts of 50 basis points in total this year.

Lower rates are likely ahead as inflation "drastically" improves in the second half of 2024, according to Detrick at the Carson Group. "It is an election year, so expect some bumps, but overall the bull market that stared in October 2022 is alive and well." 

From Hogan's perch, investors are just fine foregoing multiple rates cuts as long as the economy continues to perform and drive corporate earnings. As he put it: "We're in a better place if we don't need the Fed to come to the rescue." 

While financial markets moved higher, so-called meme stocks are plummeting to earth. Shares of companies including GameStop, AMC Entertainment and Blackberry had surged earlier this week after a popular investor, know by his online handle "Roaring Kitty," reappeared on social media after a long absence. 

In:
• Dow Jones

Kate Gibson

Kate Gibson is a reporter for CBS MoneyWatch in New York.