Investors vote Yes on U.S. stocks, sending Dow, S&P 500 to all-time highs

The major U.S. stock market indexes rallied early and late on Thursday, propelling the Dow and S&P 500 to record closing levels. The Dow gained over 100 points or 0.6% for a second time this week, closing at a record 17266. The S&P 500 also closed at a new high (2011), up 0.5% for the day and nearly 9% so far in 2014. The NASDAQ Composite climbed 0.7% on the day, finishing just 0.1% shy of a 14½-year high but up over 14% year to date.

Small-cap stocks had a fairly good day for a change, with the S&P 600 SmallCaps rising 0.6% and the Russell 2000 0.5%. The two indexes remain laggards for the week, leaving them basically flat for the year to date (S&P 600, +0.2%; Russell 2000, -0.1%). The S&P’s mid-cap index, the S&P 400 MidCaps, was the also-ran among the major market indexes we follow, gaining just 0.3% today; it is up 6.3% to date in 2014.

With the day’s economic news either a bit on the soft side or in line with Street expectations, analysts pointed to yesterday’s benign pronouncements from the Fed as the likely, if somewhat stale, reason for Thursday’s higher stock prices…

  • Housing starts came up short of Street projections, running at a 956,000 seasonally adjusted annual rate (SAAR) in August against the Street’s 1.04 million. On the positive side, July’s level of starts was revised a bit higher, and building permits had a smaller miss, coming in at a 998k SSAR versus a 1.04 million forecast.
  • The September reading on the Philly Fed’s business outlook survey was 22.5, down from 28.0 in August but in line with the Street’s 23.0 average projection (per Bloomberg).
  • The weekly jobless report easily beat Street expectations, with initial unemployment claims falling from 316k to 280k in the latest week, nearly 10% below the Street’s target of 305k and essentially the lowest level since 2000 (280k being “essentially” the same as the 279k reading in the middle of July).
  • Though it is reported with almost a three-month lag, today’s Fed so-called Z.1 report on the “Financial Accounts of the United States” showed a $1.4 trillion increase in the net worth of the U.S. household sector in the second quarter of 2014. Roughly half of the increase was the result of inflation in home prices and in the overall cost of living. Worth noting is that Tobin’s Q, the ratio of the market value of nonfinancial corporate firms to their replacement cost, rose to 112% at mid-year, its highest since 2000, when it was 115%, and almost twice the 57% reading at the end of 2008.

Bond prices were down slightly on Thursday as investors took a second day to digest the Fed’s policy statement and Fed Chairman Janet Yellen’s comments at yesterday’s press conference. Shorter Treasury bond yields were close to three-year highs, while the 10-year T-note yield was flat at 2.62% and the 30-year T-bond yield dipped two basis points to 3.35% from Wednesday’s two-month peak. High-yield bonds managed positive returns on average for the day, as yield spreads narrowed slightly. The dollar lost ground today against both the euro (-0.5%) and the pound (-0.7%), possibly on speculation that more Scots voted Nae than Aye in today’s independence referendum; but the greenback rose another 0.3% against the yen to a new six-year high.

Alibaba’s IPO has priced at $68 a share, and investors will be keenly interested in first-day trading, among them Yahoo and Softbank, companies owning significant percentages of the Chinese e-tailer. Extrapolating BABA’s total value from the IPO price – not exactly kosher, we know – produces a firm market cap slightly in excess of Amazon’s $150 billion. In Japan Thursday, Softbank share price rose 1.5%, but in the U.S. Yahoo’s fell 1.2% on the day, making it the weakest stock in the S&P 500’s technology group. After normal trading hours, Oracle shares were down 2% following the firm’s announcement that founder Larry Ellison will step down as CEO to be replaced by a two-CEO team; Ellison will remain as Chairman.

Reports/dates/facts/links to watch for over the next week:

  1. September 19: U.S. leading economic indicators (August); Atlanta Fed’s business inflation expectations (September).
  2. September 22: Chicago Fed national activity index (August); existing home sales (August).
  3. September 23: Flash PMI reports for European nations and Eurozone (September); U.S. same store sales for latest week; U.S. FHFA home price index (July).
  4. September 24: New home sales (August); German Ifo Survey (September).
  5. September 25: U.S. durable goods orders (August); weekly unemployment claims.
  6. September 26: Second-quarter GDP, first revision; University of Michigan consumer sentiment index (September).

Copyright © 2014 by Wright Investors’ Service, Inc. The views expressed in this blog reflect those of Wright Investors’ Service, Inc. and are subject to change. Statements and opinions therein are based on sources of information believed to be accurate and reliable, but Wright Investors’ Service, Inc. makes no representations or guarantees as to the accuracy or completeness thereof. These views should not be relied upon as investment advice.

About wrightnetblogger

Senior Vice President – Investment Research/Economist
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