The Atlanta Journal-Constitution
ANOTHER RECORD DAY
STOCKS HIT NEW HIGHS AMID OPTIMISM ABOUT ECONOMY
NEWYORK— The Dow Jones Industrial Average returned to a record on Monday, joining other market gauges at all-time highs, as the stock market’s rally carried into a fifth week.
Oil producers, banks and other stocks that do well when the economy is strengthening again led the way. It’s a notable shift following months of struggles for what Wall Street calls “cyclical” stocks.
What happened
Hopes are rising that the United States and China are making progress in negotiations on their trade dispute, or at least that they’re no longer making it worse.
Reports last week also showed that the job market is continuing to grow, corporate profits aren’t doing as badly as Wall Street expected and interest rates will likely remain low for a while.
Even in manufacturing, which has been hit particularly hard by the trade war, investors saw some hopes that things may be hitting bottom soon.
Rising optimism in the market was evident not only in U.S. stock indexes but also in higher Treasury yields. When investors feel less need for safety, the crowd thins to buy Treasury bonds. And when prices fall for Treasurys, their yields rise.
The yield on the 10-year Treasury climbed to 1.77% from 1.72% late Friday.
Financial stocks in the S&P 500 climbed 0.9%, aided by a 1.9% jump for Bank of America and a 1.8% gain for Citigroup.
Other cyclical sectors, such as energy and industrials, were also ahead of the pack:
■ Chevron jumped 4.6%
■ Exxon Mobil added 3%
■ Energy stocks overall climbed 3.1% after the price of oil rose
A stronger global economy would mean more demand for energy, and benchmark U.S. crude rose 34 cents to $56.54 per barrel. Brent crude, the international standard, rose 44 cents to $62.13 a barrel.
Defensive stocks, meanwhile, lagged. Utilities fell 1.3% for the largest loss in the S&P 500, and real-estate stocks were down 1.1%.
What may lie ahead
The shift in cyclical stocks doesn’t necessarily mean the all-clear for the economy and the market. Barry Bannister, head of institutional equity strategy at Stifel, sees cyclical stocks doing better than defensive stocks into the middle of 2020, but he sees the S&P 500 falling back to 3,050 by the end of the year and rising modestly to 3,100 in 2020.
All that optimism could wash away quickly if U.S.-China trade talks take yet another turn for the worse, said Tom Stringfellow, chief investment officer at Frost Investment Advisors. But investors likely need to see only incremental improvements to keep the momentum going, he said.