S&P 500, Dow Jones Industrials Rise to Record High
20 September 2018 - 4:29PM
Dow Jones News
By Michael Wursthorn and Georgi Kantchev
The Dow Jones Industrial Average and the S&P 500 climbed to
hit new intraday highs Thursday as expectations for another surge
in corporate profits helped investors look past the latest trade
sparring between the U.S. and China.
The blue-chip index is on track to close at a new high for the
first time since Jan. 26, up 220 points, or 0.8%, to 26626. The
S&P 500 is also poised to top its Aug. 29 record and is trading
0.6% higher to 2926. Meanwhile, the technology-heavy Nasdaq
Composite added 0.9% to 8022 and is within 1.5% of its August
high.
Major indexes moved higher alongside a jump in bond yields this
month, a sign that the market is shrugging off worries of how the
Federal Reserve's pace of economic tightening could potentially
roil stocks. A booming U.S. economy has helped, investors said,
with several saying that the torrid pace of growth appears likely
to outlive the trade tensions that have rocked stocks this
year.
"The good economic news has put us into a bit of a momentum
streak," said Larry Peruzzi, managing director of international
equity trading at Mischler. "And with bond yields going higher,
people are willing to take more risk and put more money into the
equity side."
The U.S. economy is on its strongest footing in years, with the
rate of unemployment at its lowest level in nearly two decades and
economic output growing at the fastest rate since 2014, and the
outlook got even rosier Thursday. Initial jobless claims, a proxy
for layoffs across the U.S., fell to its lowest level since 1969,
the Labor Department said.
Analysts credit the boom in U.S. growth to the tax overhaul
passed last year. The changes, which included a cut to the
corporate tax rate, sent corporate profits sharply higher through
the first two quarters of the year, and analysts expect
third-quarter earnings to be just as strong.
S&P 500 companies are projected to grow profits by 19% from
a year earlier, according to FactSet, after already posting growth
rates of 25% for the first two quarters of the year.
The expectation for strong profit growth is driving investors to
continue buying shares of technology companies, a sector that
includes some of the fastest-growing companies in the stock market,
some money managers said. That helped push tech companies in the
S&P 500 up 1.1% Thursday.
Still, trade tensions continue to linger in the background and
have the potential to knock stocks back if the U.S., China or other
countries ratchet up their tactics. So far, investors are
optimistic that trade tensions will eventually cool, especially
after the U.S. said it would stagger its latest levies on Chinese
imports.
"The fundamental backdrop continues to be very solid, but I
won't be surprised to see more anxiousness in the market as trade
continues to be an issue," said Eric Wiegand, senior portfolio
manager at U.S. Bank Wealth Management. "Any headlines about
dialogue between trading partners help sentiment."
But trade's impact on the global economy could be more acute
since other regions of the world, including Europe and Asia, are
seeing more sluggish growth compared with the U.S.
Citigroup said in a report to clients that a worsening trade
environment represents "a material risk to growth into 2019." The
bank lowered its forecast for global growth this year to 3.3%, the
first downward revision since October 2017, with the same rate
expected next year.
Investors are looking to next week's Federal Reserve meeting,
with most expecting the U.S. central bank to raise interest rates.
The market currently sees a 94% chance of a rate rise at the
meeting, according to Fed-fund futures tracked by CME Group.
Traders were also eyeing the central bank's projected path for
2019.
The 10-year U.S. Treasury yield rose to 3.074%, near its high
for the year. Yields move inversely to prices.
Investors continued to monitor developments in Turkey, where
Finance Minister Berat Albayrak Thursday announced lower growth
projections and pledged to focus government action on savings,
following a 40% plunge in the lira this year. The currency was last
down 1% against the dollar.
In Asia, Japan's Nikkei Stock Average finished flat while Hong
Kong's Hang Seng was up 0.3%.
Write to Michael Wursthorn at Michael.Wursthorn@wsj.com and
Georgi Kantchev at georgi.kantchev@wsj.com
(END) Dow Jones Newswires
September 20, 2018 11:14 ET (15:14 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.