‘Ottawa’ Dow, S&P Hit New Heights, Nasdaq Wipes out year’s losses: Stocks on a Tear
The Dow Jones Industrial Average joined the S&P 500 Index at a fresh record close, with U.S. equities climbing a third day as crude rallied and Alcoa Inc.’s results bolstered optimism on corporate health amid the start of the earnings season.
Alcoa jumped to a two-month high after the aluminum producer posted a profit that beat analysts’ estimates, kicking off the quarterly reporting period. BlackRock Inc., JPMorgan Chase & Co. and Citigroup Inc. are among firms releasing results this week.
Commodity producers and and transportation stocks posted some of the biggest gains today, with American Airlines Inc. rallying 11 per cent for its best day since at least December 2013. Oil and gas companies climbed to the highest since November as crude had its biggest gain in three months. Miner Freeport-McMoRan Inc. increased 11 per cent.
The S&P 500 added 0.7 per cent to 2,152.06 at 4 p.m. in New York, extending its all-time high after surpassing yesterday the previous record reached in May 2015 on bets of a brighter economic outlook after Friday’s jobs report.
Strong gains in metals and energy stocks drove the S&P/TSX composite index in Toronto 115.79 points higher to 14,477.67.
“People are coming back into stocks because they see central banks coming in very quickly to backstop markets. That’s what we’ve witnessed post-Brexit,” David Zervos, chief market strategist at Jefferies LLC, said in a television interview on Bloomberg Go.
The S&P 500 climbed above 2,152, the average level at which strategists surveyed by Bloomberg see the equity benchmark ending 2016. It marks the first time since November 2014 that the gauge has caught up to their optimistic forecasts.
Stocks have climbed since Friday, erasing the losses triggered by the U.K.’s vote to leave the European Union, as a stronger-than-forecast payrolls report helped allay investor concerns. At the same time, traders are pricing in little chance of an interest-rate hike from the Federal Reserve anytime soon, with September 2017 being the first month that has even odds of a raise, implying a so-called “Goldilocks” scenario for equities in which the economy expands but at a lukewarm pace to hold off further monetary tightening.
Meanwhile, investors have also sought the safety of Treasuries in the aftermath of the Brexit vote, sending bond yields to record lows last week. Fresh peaks for stocks coupled with all-time lows for bonds is unusual given that they are generally seen as risk-on/risk-off complements. Demand for U.S. bonds has also ramped up amid sub-zero yields in Europe and Japan.
“I firmly believe in the efficacy of QE — I think it works great magic — but I’m a little concerned that we’ve now taken bonds to record low yields and stocks to record highs at the same time,” Zervos said. “Usually, bonds are supposed to hedge equities. What the Fed is doing is running this very hot, and the traditional outcome of that isn’t so hot.”
Investors turn their focus to corporate results this week, with analysts projecting a profit decline of 5.7 percent at S&P 500 companies in the second quarter. That would make it the fifth straight quarterly drop, the longest streak since 2009. Bank earnings are forecast to slide 11 percent in the period.
“We’ve been so overwhelmed with larger macro and political issues for the last couple of cycles that we now have the chance to focus on individual companies and see how they’re doing,” said Peter Jankovskis, who helps oversee $1.9 billion as co- chief investment officer of Lisle, Illinois-based OakBrook Investments. “That could be very positive for the market.”
The S&P 500’s main groups that have posted the biggest gains in 2016 — utility and phone companies — were among the weakest today. The industries, often considered defensive since they pay higher dividends and are less reliant on economic growth, lagged the broader index Tuesday along with consumer- staples companies.
— With assistance from Camilla Naschert and Oliver Renick.