The Dow Jones Industrial (^DJI) briefly crossed 40,000 this week. Global Market Strategist at JPMorgan Asset Management Jack Manley joins The Morning Brief to discuss the significance of this milestone and why he believes the market only has room to grow.

"As long as markets are comfortable with where rates are right now and rates are where they are because the economy is doing well, I think this rally has got legs, especially as we move into the back half of the year," Manley tells Yahoo Finance.

Manley believes the market rally could go between 5 and 10% higher, but signals this forecast comes at the risk of underestimating what the US equity market is capable of.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Nicholas Jacobino

Video Transcript

The market rally is, it's set to broaden out here for the rest of the year for that.

We want to bring in Jack Manley JP Morgan Asset Management, Global Market strategist, Jack, it's great to see you here at the desk.

So talk to us just about how you're looking at Dow 40,000, this psychological level.

How significant is this at all here for the market?

II, I think psychologically it's, it's sort of amusing.

I mean, first of all, I remember Dow 20,000.

Not too long.

Everybody was getting those caps sitting here.

I was so excited about right now.

It's like, well, we're double that.

I can't, I can't believe it, but the, the rally that we've been seeing whether it's, it's tech stocks and Nasdaqs or the blue chips or, or whatever, it feels good to me.

Ho honestly, because, um, the macro data have been pretty good and, and you know, all these macro data that we've been talking about CP IP P IP employment from a couple of weeks ago, all this stuff matters because of what it means for rates.

And at this point, the market is used to this idea that the economy is a lot more resilient than we had expected five months ago.

Right.

That is not a surprise anymore.

So, as long as the data keep on coming in where they're supposed to come in, even if that's strong, that's not a bad thing.

You've already seen this massive swing in the pendulum in terms of rate expectations.

It's gonna take a lot more to change that, you know, 25 to 50 basis points of cuts this year to no cuts this year, even even hikes.

And we've heard that from, from Powell himself.

So as long as markets are comfortable with where rates are right now and rates are where they are because the economy is doing well.

I think this, this rally's got legs, especially as you move into the back half of the year.

Yeah.

Yeah.

Go ahead.

When you talk about the rally having legs.

How much higher do you think we could go from here?

Oh, gosh, I mean, that's a tough one.

I mean, 5 10% by the end of the year maybe.

Um, you know, I think we've learned over the last couple of years that you never want to underestimate what the US equity market is capable of.

Like, you don't want to underestimate what our economy is capable of what our, what our consumer is, is capable of.

So I don't want to woe ball that number.

Right.

But for me, as we move into the back half of the year.

It is all about this, this, this broadening out because so much of the rally from last year is still being driven by, by multiples.

You still have markets that are trading at pretty elevated levels.

And any time you're not only at all time highs but all.

So at all time highs because of multiple expansion, you're asking for trouble, right?

You're asking for volatility.

So the earnings have to catch up.

And thankfully, those big tech names have really been pulling their weight, which is great.

A lot of development on that front.

But we need the rest of the index to start playing ball too.

And that is uh I think a back half story, I think it helps to cushion the valuation below a little bit and I think it helps to get the market just a bit higher from there.

Markets are forward looking and for a market that might be looking 6 to 9 months out, even when you're thinking about a portfolio pivot, what is the flashing sign that investors should be looking for in order to make sure that they're not continuing to enact the higher for longer playbook?

When now you're clearly getting signs that the fed may be starting to enact a. Ok. Now it's a rate cutting time.

So from an equity perspective, Brad, I I don't think there really is a pivot necessary, at least if you've been, you've been playing it the way that I've been thinking, which is right down the line, kind of boring core us equities, right?

I feel like there's a big temptation right now with, with conversations to sort of pigeonhole yourself and say, well, is this a growth market?

Is it a value market?

Right?

I think the pond that you're fishing in is just too big.

You cannot limit yourself to a style box or, or, you know, one way or the other.

Uh, the story for me right now has been and I think will be for a long time, a story that has to emphasize quality in, in security selection and quality there being, you know, dependable earnings growth, reasonable valuation, a strong balance sheets and that quality being so important.

And, and we've talked about this before, money is not free.

You know, we spend a lot of time talking about the fed cutting rates and, and when they do start to cut how much they're gonna cut by.

But I can tell you with near 100% certainty that even if there's a recession rates aren't coming back down to zero.

That experiment, I think is behind us.

And if money is not, not free, we gotta be more thoughtful about how we allocate.

And that's a quality story.

And I don't think that changes, even when the fed does start to cut rates.