Banks lead stock indexes higher; U.S. dollar soars in value

Fed’s rate increase provides boost, with more hikes on horizon.

NEW YORK — A surge in banks and other financial stocks that stand to benefit from higher interest rates pushed indexes to the edge of record highs Thursday. The dollar rose sharply against other currencies on expectations that the Federal Reserve will follow up Wednesday’s rate increase with several more next year.

The Standard & Poor’s 500 index rose 8.75 points, or 0.4 percent, to 2,262.03. It made up about half its loss from the prior day, which was its worst in two months.

The Dow Jones industrial average rose 59.71 points, or 0.3 percent, to 19,852.24. The Nasdaq composite rose 20.18 points, or 0.4 percent, to 5,456.85. All three indexes are within half a percent of their record highs.

“I think the market is just going through a period of rational exuberance,” says Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management. “The prospect for faster economic growth and the normalization of interest rates — these aren’t bad things for the stock market.”

The Federal Reserve raised short-term interest rates Wednesday by a quarter of a percentage point on the back of a strengthening economy. It was only the second rate increase in a decade, and the Fed indicated three more may be on the way in 2017.

That helped goose the dollar’s value, which has been climbing against other currencies for the past couple years. The ICE U.S. Dollar index, which tracks the value of the dollar against the euro, Japanese yen and four other currencies, rose to its highest level since 2002.

Higher rates can also help banks reap bigger profits from making loans, and financial stocks jumped to the biggest gain of the 11 sectors that make up the S&P 500 index, 1 percent. Bank of America rose 49 cents, or 2.2 percent, to $23.16, and Zions Bancorp. gained 84 cents, or 2 percent, to $43.04.

Stocks that pay big dividends lagged behind the rest of the market on fears that higher interest rates will push income investors back into bonds. Real-estate stocks in the S&P 500 fell 0.7 percent.

The yield on the 10-year Treasury note rose to 2.60 percent from 2.57 percent late Wednesday and reached its highest level in more than two years.