S&P 500 hits record high on strong earnings reports
The Standard & Poor’s 500 reached an all-time high Tuesday, marking the stock market’s complete recovery from its nosedive at the end of last year.
The benchmark index set its previous record high in September, shortly before the market sank in the fourth quarter amid fears of a recession, an escalating U.S.-China trade war and concern the Federal Reserve was moving too aggressively to raise interest rates.
Those concerns have eased or taken a back seat to more optimism among investors this year. Investors are more confident in the prospects for steady, if slower, growth. And they’ve been encouraged by an increasingly hands-off Federal Reserve, which has signaled that it might not raise interest rates at all this year.
Traders are also feeling more optimistic about the global economy. China’s economic growth held steady at 6.4% in this year’s first quarter as increased government efforts to stem a slowdown gained traction. In the U.S., job growth rebounded in March after a surprisingly weak February.
And the uncertainty over the costly U.S.-China trade dispute has eased in recent weeks amid signs both sides are making progress toward reaching a resolution.
The S&P 500 has now recovered all of the ground it lost last fall, gaining 24.8% since it hit a bottom on Christmas Eve.
“New highs, in and of themselves, tend to be bullish and tend to beget more new highs,” said Willie Delwiche, investment strategist at Baird. “You have the combination of Fed friendliness, the economy still in good shape and some expectations from an earnings front being reset that create a fundamental backdrop that isn’t all together unfavorable for stocks.”
Tuesday’s broad rally was driven by big U.S. companies turning in solid firstquarter results. Those results surprised investors because analysts have forecast the worst quarter of earnings growth in years.
The S&P 500 index rose 25.71 points, or 0.9%, to 2,933.68. Its previous record closing high was 2,930.75, which was set Sept. 20.
The Dow Jones industrial average rose 145.34 points, or 0.5%, to 26,656.39. It’s still down 0.6% from the record high it set in October.
The Nasdaq composite index climbed 105.56 points, or 1.3%, to 8,120.82, beating the record-high close of 8,109.69 it reached Aug. 29.
Small-company stocks rose much more than the rest of the market, a bullish sign indicating that investors were more willing to take on risk. The Russell 2000 index picked up 25.05 points, or 1.6%, to 1,585.09 — still down nearly 9% from the peak it reached in August.
At the sector level, technology and industrial stocks are leading the way this year, with gains of 27.2% and 22.4%, respectively.
Although the S&P 500’s latest milestone reflects renewed optimism about stocks, where the market goes from here depends largely on corporate earnings growth. To that end, the breadth of earnings growth is key, Delwiche said.
“You could argue that a bulk of the decline last year was concern about the global economy and whether or not the Fed was tightening too much too soon,” Delwiche said. “The question is: What’s next?
“You really need to see how the average stock does,” he said. “Is the average stock able to come through with earnings growth? Is the average stock able to rally? Or have the past six, seven months been just one big action-reaction and we’re left with spinning heads?”