US stock prices jump on positive news
NEW YORK, USA — A rally that brought the stock market to record highs this year came back to life after US home prices rose the most in seven years and consumer confidence reached a five-year high. As stock prices rose investors sold bonds, sending interest rates higher.
The Dow Jones industrial average rose 106 points to close at another record Tuesday, bouncing back from a loss the week before. The Standard & Poor’s 500 index also gained. The S&P is on track for its seventh straight monthly gain, the longest winning streak since 2009.
“They say the stock market tends to lead the economy. Now we’re starting to see the improvement on the economic front, so there’s some justification for this rally,” said Ryan Detrick, a senior technical strategist at Schaeffer’s investment research.
The yield on the 10-year Treasury note jumped to 2.17 per cent, its highest level since April 2012, as investors moved money out of safe assets and into riskier ones like stocks. That’s a big jump from Friday’s level of 2.01 per cent. Markets were closed Monday for Memorial Day.
The Dow closed 106.29 points, or 0.7 per cent, higher at 15,409.39. The index has risen for 20 straight Tuesdays. The longest streak of consecutive gains for any day of the week was sent in 1968, when there were 24 gains on Wednesdays, according to Schaeffer’s Investment Research.
The S&P 500 index rose 10.46 points, or 0.6 per cent, to 1,660.06. The Nasdaq composite index climbed 29.74 points, or 0.9 per cent, to 3,488.89.
The stock market is coming off a rare loss last week, when both the Dow and the S&P 500 index had their first losing weeks in a month. Investors worried that the Federal Reserve might slow its extraordinary economic stimulus measures, which have also supported the stock market’s advance.
Part of the reason for the increase in bond yields is anticipation that the Fed may ease back on its US$85 billion a month in bond purchases. Tim Courtney, chief investment officer at Exencial Wealth Advisors, is among those who see a bleak outlook for the bond market. Rising inflation will eventually lead to higher interest rates, Courtney said, and losses for bond investors.
“The only way that bonds can make money from here is if we go through a prolonged period of time with very, very low inflation and rates just don’t move up a whole lot at all,” said Courtney. “Under any other scenario they lose.”
The Standard & Poor’s/Case-Shiller survey, which was released before stock trading opened, found that US house prices rose 10.9 per cent in March, the most since April 2006. A growing number of buyers are bidding on a tight supply of houses. Beazer Homes jumped 63 cents, or 3 per cent, to US$21.96.
Stocks extended their gains in the morning after the Conference Board reported at 10 am that its measure of consumer confidence rose in May to its highest level since February 2008.
The Dow was up as much as 218 in the early going, then gave up some of its gain in the afternoon.
Some analysts judged that investors were booking gains with the end of the month approaching on Friday. The Dow is up 3.8 per cent so far in May. The S&P 500 is 3.9 per cent higher.
“It’s the end of the month,” said Quincy Krosby, a market strategist at Prudential Financial. “If you’ve been long and you’d done very well you want to lock in those gains.”
The gains were broad. Eight of the 10 industry groups in the S&P 500 index rose, led by financial stocks. The only ones that fell were utilities and telecommunication stocks, which investors tend to buy when they’re seeking stable, safe stocks that pay high dividends. All but six of the 30 stocks in the Dow rose.
The Dow has advanced 17.6 per cent this year and the S&P 500 index is 16.4 per cent higher as investors have piled into stocks.
Unlike the first three months of the year, when the biggest gains were in large, stable companies like consumer staple makers that pay big dividends, in recent weeks investors have been bidding up the stocks of companies that have more to gain if the economy strengthens. That shift out of lower-risk stocks and into more “cyclical” stocks, like banks and industrial companies, means investors are becoming more aggressive in seeking returns and more comfortable taking on risk.
Another bullish signal for the market is the strong growth in small-company stocks. Those stocks have a greater potential for appreciation but also tend to carry greater risk than large, diversified companies. The preference for small stocks was on display again yesterday as the Russell 2000 index of small-company stocks rose 1.3 per cent, more than other market indexes, to 997 points, a gain of 13 points. Its year-to-date increase of 17.4 per cent is one percentage point greater than that of the S&P 500.
Among other stocks making big moves: — Tiffany rose US$3.01, or 3.9 per cent, to US$79.22 after the high-end jewellery seller said its first quarter net income rose 3 per cent as sales improved across all regions. The results beat the forecasts of Wall Street analysts.
— Tesla Motors jumped US$13.25, or 13.7 per cent, to US$110.33. Last week the electric car maker raised almost US$1 billion from a bond and stock offering and paid off a government loan nine years early. The company is also set to announce this week that it’s adding to a network of car charging stations.
— Railway operator CSX fell 20 cents, or 0.8 per cent, to US$25.30 after one of its freight trains derailed in a Baltimore suburb.
— Electricity company FirstEnergy dropped 6.5 per cent, or US$2.76, to US$39.86 after Credit Suisse stripped the company of its “outperform” rating, saying that a glut of energy would push down prices the company is able to charge.
In commodities trading, the price of oil rose 86 cents, or 0.9 per cent, to US$95.01. Gold fell US$7.70, or 0.6 per cent, to US$1,378.90 an ounce. The dollar gained against the euro and the Japanese yen.
— AP