By Michael Wursthorn
The Dow Jones Industrial Average is poised to close at a new
high Thursday for the first time since late January, a sign of
investors' conviction in a booming U.S. economy.
All but one of the 30 stocks in the blue-chip index climbed in
recent trading, from the tech giants like Apple and Microsoft that
have helped power the stock market to records to trade-sensitive
stocks such as Boeing and Caterpillar.
The broad gains also pushed up the S&P 500, which is on
track to top its Aug. 29 record, while the Nasdaq Composite surged
alongside a rally in technology stocks to move within 1.2% of its
high set the same day.
The major indexes are rising alongside a recent jump in bond
yields, a sign the market is shrugging off worries the Federal
Reserve's pace of economic tightening could roil stocks. A
strengthening U.S. economy has boosted sentiment, and several
investors said 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 Dow industrials climbed 251 points, or 1%, to 26657 in
afternoon trading. The S&P 500 added 0.8% and the Nasdaq
Composite rose 1%.
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. The outlook
got even rosier Thursday as initial jobless claims, a proxy for
layoffs across the U.S., fell to the 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 profits sharply higher through the first
two quarters of the year, and analysts expect third-quarter
earnings to be robust as well.
S&P 500 companies are projected to grow profits by 19% from
a year earlier, according to FactSet, after posting growth rates of
25% for each of 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 1.2% Thursday.
Shares of Apple added 1%, extending their gain for the year to
30%. Boeing and Caterpillar, which have both seen their stock
prices sag under concerns about trade tensions, added 0.5% and
2.2%, respectively.
Energy company Chevron edged down 0.3% though, making it the
only stock in the Dow industrials to fall in recent trading.
The blue-chip index would be the last of the big U.S. benchmarks
to eclipse its January record. Major indexes slumped into
correction territory in early February and have slowly churned
higher to top their previous highs.
While the strong economic growth has stoked stocks, bond prices
have stumbled, sending yields higher. The 10-year yield, which sits
at 3.068%, has climbed 0.245 percentage point in the past month and
is on track to rise for a fourth consecutive week. September's jump
in yields is the biggest since January.
The two-year Treasury yield, meanwhile, rose to 2.812%, the
highest since June 2008.
Investors increasingly expect quickening growth to give the Fed
sufficient reason to continue with its quarterly pace of
interest-rate increases through the first half of next year. The
market currently estimates a 94% chance of a rate rise at the Fed's
meeting next week, according to Fed-fund futures tracked by CME
Group.
Meanwhile, the U.S. dollar fell to its lowest level in more than
two months, another sign that investors expect the U.S. to avoid a
trade war. The WSJ Dollar Index, which measures the U.S. currency
against a basket of 16 others, dropped 0.4% to 88.87, its lowest
level since early August. The measure is off more than 2% from last
month's highs.
A weaker dollar eases pressure on multinational corporations
because it makes products cheaper to sell abroad, while boosting
the value of overseas earnings that are converted back to U.S.
dollars. It also could offer some relief to struggling
emerging-market countries that service their debt in U.S. dollars.
The WSJ Dollar Index is up nearly 3.5% this year.
Still, trade tensions continue to linger in the background and
have the potential to knock stocks off their highs if the U.S.,
China or other countries ratchet up their tactics, analysts said.
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.
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.
"I would keep a close eye on the trade negotiations with Canada
and more importantly with China," said Chris Zaccarelli, chief
investment officer of Independent Advisor Alliance, a $3 billion
wealth-management firm. "I don't think we can blow the all-clear
sign until steps are in place to resolve trade concerns with China,
which are now more of a threat than ever."
--Daniel Kruger, Ira Iosebashvili and Georgi Kantchev
contributed to this article.
Write to Michael Wursthorn at Michael.Wursthorn@wsj.com
(END) Dow Jones Newswires
September 20, 2018 15:26 ET (19:26 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.